Rolls-Royce (LSE:RR), BAE Systems, and Centrica are among the FTSE 100 companies that have seen their market value double in the last couple of years.
Incidentally, I owned both Rolls-Royce and BAE Systems before they rallied, and sold my holdings as the stock surged.
Selling was a mistake, but it’s important to recognise that it required a lot of conviction to remain invested as a stock climb and returns multiply. I took my gains.
Of course, we are all on the look out for the next stocks that will surge. But this can be notoriously hard to do. If it was easy, we’d all be millionaires!
So here are three FTSE 100 stocks that could conceivably double in value.
Rolls-Royce
That’s right. I believe Rolls-Royce could double in value again. The stock is up 195% over the past 12 months.
However, from a valuation perspective, there could be more to come. The selling point is the company’s 0.5 price-to-earnings-to-growth (PEG) ratio.
This is an earnings ratio that is adjusted for growth, and is calculated by dividing the price-to-earnings ratio by the expected growth rate over the next five years.
A PEG ratio below one suggests a company is undervalued. And PEG ratio of 0.5 could infer that Rolls-Royce is undervalued by half.
It’s not just me that thinks this. In its most optimistic scenario, UBS analysts see Rolls shares reaching as high as 600p.
But this is dependent on a continued recovery of civil aviation. In its most pessimistic scenario, the Swiss bank analysts see the share price falling to 100p.
Lloyds
Lloyds (LSE:LLOY) stock is currently trading for 43p. That’s half what Morgan Stanley analysts believe the lender should be trading at if the UK economy remains resilient in 2024.
This is also reinforced by a PEG ratio of 0.5.
I’ve said this before. I’m surprised the PEG ratio is so low considering the growth rate reflects the consensus of a pool of analysts — not just one bullish one. My own calculation put the PEG ratio slightly higher.
The US investment bank has a target price of 64p — that’s slightly above the average target price of 60p.
Despite concerns about credit losses in a failing economy, the risks appear to be overplayed and Lloyds looks undervalued. Conceivably, it could be worth double what it is today.
IAG
International Consolidated Airlines (LSE:IAG) trades at one-third its pre-pandemic price.
The stock suffered during the pandemic, outperformed in 2023, and is now facing more headwinds in the form of higher fuel prices — despite hedging — in 2024.
The stock trades at 4.3 times TTM (trailing 12 months) earnings and four times forward earnings. It’s one of the cheapest stocks on the FTSE 100 using these near-term metrics.
However, the below chart shows that earnings are projected to fall as higher fuel costs are factored in next year.
2023
2024
2025
EPS (¢)
46
35
40
Personally, I believe these forecasts are a little pessimistic. Air fares in Europe have increased by double-digit percentages for three years in a row, and there’s little evidence of demand falling.
Following the pandemic, holiday travel has been one of the most resilient sectors in consumer discretionary.
If the earnings forecast picks up, I’d expect to see the P/E ratio fall closer in line with Ryanair (10.91).
The post 3 FTSE 100 stocks that could conceivably double in value! appeared first on The Motley Fool UK.
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See the full investment case
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More reading
If I’d put £1,000 in Lloyds shares at the start of the pandemic, here’s what I’d have now!
At 43p, I think Lloyds shares are a no-brainer!
Are Lloyds and Rolls-Royce the best value FTSE 100 shares to buy?
2 FTSE 100 value stocks I’d rather buy instead of Lloyds shares!
If I put £10k in Rolls-Royce shares today, how much could I have in 5 years time?
James Fox has positions in International Consolidated Airlines Group and Lloyds Banking Group Plc. The Motley Fool UK has recommended BAE Systems and Lloyds Banking Group 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.
