Should I Invest in These 5 FTSE 100 Shares?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I've looked at Royal Dutch Shell (RDSB), Shire (SHP), Compass Group (CPG -0.92%), Wm. Morrison Supermarkets (MRW) and Melrose Industries (MRO -1.70%). This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):

Shire is a clear winner on the scoring, but each company has something to offer investors.

Big oil
In recent news, Shell is set to expand its liquefied natural gas operations with the acquisition of part of Repsol S.A.'s LNG portfolio outside of North America, which includes supply positions in Peru and Trinidad and Tobago. The assets will bolt on to Shell's existing worldwide LNG business. The company also has plans to expand its oil business, but the total-return potential for investors depends as much on the vagaries of oil and gas prices, and general macro-conomic conditions, as anything else.

Pharmaceuticals
Shire focuses on disease areas like behavioral health and gastrointestinal conditions, rare diseases, and regenerative medicine. The company has a strong pipeline of treatments to add to those already selling for illnesses such as ADHD, Hunter syndrome, Fabry disease, ulcerative colitis, and Gaucher disease. Growth has been brisk and Shire's operations stretch as far as the U.S., Europe, South America, Canada, and the Pacific Rim. With such a high total-return score, the shares are tempting.

Catering
Business has been brisk in North America and in emerging markets for Compass. Together, those regions account for around 63% of revenues. The company focuses on food but also provides related services like cleaning and accommodation management, for example. Those emerging markets, which include countries such as Brazil, Turkey, and South Africa, are increasingly important to forward growth expectations, and if such growth can continue to generate free cash flow, the company's total return prospects look encouraging. The shares value the company accordingly.

Food retailing
Morrison is the U.K.'s fourth largest supermarket chain, with more than 400 stores, and its business is mainly food and grocery. It differentiates itself from its competitors by sourcing and processing fresh food though its own manufacturing facilities. That could help the company through the current horse-meat scandal. Trading during 2012 was tough and the directors are expecting 2013 to be similar. That makes me a little nervous about the total-return prospects for Morrison investors.

Manufacturing
Melrose aims to buy, improve, and then sell manufacturing businesses and currently has operations in the energy, lifting, and general industrial sectors around the world. A typical acquisition occurred during 2012 with Germany-based Elster Group, a manufacturer of metering products sold worldwide, which Melrose financed with a 1.2 billion pound rights issue and a new 1.5 billion pound bank facility. Balancing transactions occurred with the sale of two businesses, Dynacast and MPC, and the associated return of proceeds to Melrose's shareholders. As with other companies, investment in Melrose ultimately seeks a total return from the level of the share price and the value of dividends paid. The company's potential looks encouraging and I might buy the shares on any weakness in the price.

Action plan
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