While the FTSE 100 index hasn’t produced the same level of returns as the S&P 500 in recent years, the UK’s home to plenty of world-class stocks. From consumer goods businesses to financial technology companies, there are some legendary companies on the London Stock Exchange.
Here, I’m going to highlight two companies I view as world-class. I think they could be worth considering for a Stocks and Shares ISA or SIPP (Self-Invested Personal Pension) this tax year.
A leading financial technology company
First up is London Stock Exchange Group (LSE: LSEG) itself. It’s a major player in several areas of the financial markets, including financial data and analytics, indices (it owns FTSE Russell), capital markets, and risk management.
This company has a lot going for it right now, in my view. For starters, thanks to its recent acquisition of data company Refinitiv, it now has the foundation for sustained, profitable growth. That’s because the acquisition should lead to a larger proportion of recurring, growing revenues and more consistent earnings.
Secondly, the company’s doing some really exciting things in the artificial intelligence (AI) space in partnership with tech giant Microsoft. It’s said that together, the two businesses will transform how financial markets participants communicate, research, analyse data, and trade.
Now, it’s worth noting that London Stock Exchange Group does have some powerful competitors. In the financial data space, for example, it’s up against the likes of Bloomberg and FactSet, and this adds risk to the investment case.
Overall though, I really like the look of the stock right now. Its price-to-earnings (P/E) ratio is 26 at present (falling to 23 using next year’s earnings forecast) which isn’t particularly high for a financial data company that’s growing at a healthy pace.
One of the world’s top hotel businesses
The second world-class UK stock I want to highlight is InterContinental Hotels Group (LSE: IHG).
It’s the owner of InterContinental, Holiday Inn, Crowne Plaza, Kimpton, and a stack of other well-known hotel brands.
This is another company with attractive long-term fundamentals. In the years ahead, cashed up Baby Boomers are going to be retiring in droves. And it’s likely they will be spending heavily on travel.
As a global hotel company with a broad range of brands – ranging from exclusive to budget – IHG is well-placed to benefit from this trend. So I expect its revenues and earnings to climb steadily.
Looking beyond the growth story, one thing I like about IHG is that it’s a very profitable company, due to its asset-light franchise model. This model enables the company to generate very high returns on capital and reinvest for long-term growth.
Of course, the big risk here is a downturn in consumer spending in the short term. We can’t rule out this scenario.
Taking a long-term view however, I’m optimistic about its prospects. The stock currently trades on a P/E ratio of 24 (falling to 21 using next year’s earnings forecast), which I think it’s a reasonable valuation given the company’s high-quality attributes.
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Edward Sheldon has positions in InterContinental Hotels Group Plc, London Stock Exchange Group Plc, and Microsoft. The Motley Fool UK has recommended InterContinental Hotels Group Plc and Microsoft. 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.
