Finding stocks capable of beating the wider index can be challenging. After all, above average growth rates tend to be factored in to valuations, thereby eroding the potential for FTSE 100-beating performance over the medium to long term.
However, the market is not always efficient and a prime example of this is with regard to international financial services company Prudential (LSE: PRU). It is currently enduring a rather uncertain period, with a new management team not yet having made its mark on the company’s financial performance or long term strategy. Furthermore, Prudential has a considerable amount of Asian focus and, with the Chinese economy enduring an uncertain period, the outlook for the region could be rather challenging.
Despite these two factors, Prudential is expected to post a rise in its bottom line of 14% in the current year, followed by 9% next year. Both of these figures are considerably higher than the wider index’s growth rate and show that Prudential is likely to continue to grow its earnings at a faster rate than the majority of its peers. And, with the company’s shares trading on a price to earnings (P/E) ratio of just 13.3, they appear to offer considerable upward rerating potential in the coming years, too.
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Similarly, telecoms company Vodafone (LSE: VOD) is expected to surprise on the upside next year. While the European economy has held its performance back in recent years, Vodafone is due to grow its earnings by 20% next year as the ECB’s changed stance on stimulating the single-currency region is expected to have a positive impact on the growth outlook.
Furthermore, Vodafone is also likely to benefit from further diversification and its impact on investor sentiment. It is moving towards becoming a quad play operator and this could cause the market to believe that it offers a more stable earnings profile, thereby deserving to trade at a higher valuation. And, with Vodafone having a very strong balance sheet, M&A activity could help it to boost its bottom line even further, thereby commanding a more positive viewpoint from the market.
Meanwhile, Allied Minds (LSE: ALM) is up 8% today after its subsidiary Precision Biopsy has raised over $33m to accelerate the commercial expansion of its ClariCore biopsy system. This is designed to provide accurate real-time classification of prostate tissues during biopsy procedures. The funds raised will also accelerate development of its Focal Therapy programme, which seeks to provide targeted localised therapy to reduce complications and improve outcomes.
Clearly, this is positive news for Allied Minds and shows that there is considerable investor backing behind the business. And, while it is expected to remain loss-making for the foreseeable future, there is genuine growth potential within the spaces in which Allied Minds operates. For example, with current TRUS-guided prostate biopsies missing as much as 30% of cancers that require therapy and there being 2m such biopsies performed each year, there is a considerable scope for its ClariCore biopsy system to produce high levels of profitability in the long run.
