Earlier this month, The Financial Times highlighted seven UK shares that had returned around 1,000% on average over the last 20 years (turning a £50k investment into around £550k). The shares were Bunzl, Intertek, Howden Joinery, Compass, RELX, Experian, and Diploma.
Here, I’m going to look at some key takeaways from this interesting list of stocks (which the FT named the ‘Unglamorous Seven’). I’m also going to highlight a UK stock that I believe has a chance of providing similar kinds of returns in the future.
What can we learn from the Unglamorous Seven?
Looking at these stocks, and the huge returns they’ve generated for investors, I think there are a few takeaways. One is that picking individual stocks can be a lucrative investment strategy.
In recent years, a lot of investors have moved away from individual stocks in favour of tracker funds. Now, there’s nothing wrong with tracker funds, of course. These products can be very effective long-term investments. However, by including individual stocks in a portfolio, investors may be able to generate higher long-term returns.
Another is that it can pay to invest some money in a few, smaller, up-and-coming companies (instead of all the usual large-cap stocks like BP, Tesco, and Shell). Twenty years ago, all of these companies were relatively small. Even today, none of these seven are really household names.
A third takeaway is that they’re all what I would describe as high-quality businesses. While they’re not particularly exciting (hence the Unglamorous Seven moniker), they all offer important services that customers tend to pay for continually. Meanwhile, they’re all leaders in their fields with competitive advantages.
Additionally, they all generate high returns on capital, meaning that they’re very profitable. This last point is worth highlighting. Over the long term, companies that generate consistently high returns on capital tend to get much bigger.
Finally, a long-term investing mindset has been important. The 1,000% returns have not come overnight. They’ve come over two decades.
Company
What it does
Five-year average ROCE
Compass
Food catering services
12.3%
RELX
Data and analytics services
22.6%
Howden Joinery
Supplies kitchens
25.6%
Bunzl
Distributes products to businesses
14.4%
Experian
Credit data services
17.1%
Diploma
Seals, controls, and life sciences
14.5%
Intertek
Quality and safety testing services
20.9%
A future super stock?
As for stocks with the potential to return 1,000% over the next 20 years, I see plenty on the London Stock Exchange.
But one I want to highlight is Cerillion (LSE: CER). It’s a fast-growing technology company that specialises in back office software for telecoms companies and other businesses.
This company is very small today. Currently, its market-cap’s only around £430m. If it was to generate a 1,000% return from here, the market-cap would still only be around £5bn (ie the bottom end of the FTSE 100 in terms of size).
Looking ahead, I think it has plenty of growth potential. Today, many telecom companies are still using old, inefficient legacy systems. I expect telco digital transformation to remain a big theme for many years.
As for profitability, it’s impressive. Over the last five years, return on capital has averaged about 23%, which is excellent.
Of course, there’s no guarantee the stock will provide strong returns going forward. One risk is CEO Louis Hall leaving or retiring. In recent years, Hall has done an excellent job.
Overall though, I’m very optimistic about the stock’s long-term prospects.
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Edward Sheldon has positions in Cerillion Plc and London Stock Exchange Group. The Motley Fool UK has recommended Bunzl Plc, Cerillion Plc, Compass Group Plc, Experian Plc, Howden Joinery Group Plc, Intertek Group Plc, RELX, and Tesco Plc. 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.
