Cash ISAs are a helpful savings tool, but with interest rates where they are today, these tax-free wrappers aren’t particularly attractive from an investment perspective.
That’s why I’ve invested all my money in high-quality, blue-chip stocks and, today, I’m going to outline the FTSE 100 companies I believe will generate significantly better returns over the long term than cash.
The world needs to eat First up is the global catering business Compass (LSE: CPG). This company flies under the radar of most investors because it’s relatively boring. The group provides catering facilities around the world, which is a dull, but essential, service. Moreover, profit margins in this business are relatively thin, so it pays to be big in this industry. Economies of scale have helped Compass expand its operating profit margin from just 4.6% in 2013 to 7.1% for 2018.
In the grand scheme of things, the company is still relatively small with a market-cap of £27bn, and sales of £23bn last year. According to estimates, the overall global catering market is worth $203bn a year and is expected to grow at a compound annual rate of around 6% for the next five years. So, there’s still plenty of room for Compass to prosper in this market.
The company follows a buy-and-build strategy, using its financial firepower to acquire smaller peers around the world and then integrating them into the overall Compass ecosystem. The strategy has worked exceptionally well, so far. Net profit has increased at a compound annual rate of 21% during the past six years, and shareholders have seen a total return of 19% per annum over the past decade.
Considering this track record, I think Compass is a great buy-and-forget stock. As long as the company continues to do what it does best, steady earnings expansion should drive share price growth for many years to come.
Family business My next buy-and-forget stock is Associated British Foods (LON:ABF) (LSE: ABF). Over the past decade, shares in this business have produced an average annual return for shareholders of 15.6%, outperforming the FTSE 100 by 5.3% per annum.
What I like about this blue-chip company is that it’s still owned and managed by its founding family. Research shows that family-owned businesses tend to perform better over the long term because managers tend to prioritise investment for long-term growth, rather than short-term profit maximisation.
ABF is 54.5%-owned by Wittington Investments Ltd, which was established in 1941 by Garfield Weston, the founder of ABF’s group of predecessor businesses. The current CEO is descendant of the founder George Garfield Weston.
As the company’s managers own so much of the business and have so much at stake, shareholders can rest safe in the knowledge that management will always act with the best interests of shareholders in mind and, in my opinion, this is a fantastic quality to look for in a buy-and-forget investment.
With this being the case, while the stock might look relatively expensive at first glance (it’s currently dealing at a forward P/E of 17.3) I think it’s worth paying up to invest in this family-owned-and-run company that has increased net profit at a compound annual rate of 11.5% for the past six years.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Associated British Foods and Compass Group (LON:CPG). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019