The FTSE 100 index is home to a number of ‘super stocks’. I’m talking about stocks that have delivered huge returns for investors over the long term, due to the quality of their underlying businesses.
The good news, for long-term investors like myself, is that after Friday’s mini stock market crash, many of these FTSE 100 super stocks are now cheaper. With that in mind, here’s a look at two I’d be comfortable buying for my own portfolio today.
A top FTSE 100 stock to buy
The first stock I want to highlight is Rightmove (LSE: RMV). It operates the UK’s largest property website. Rightmove ticks a lot of boxes for me as an investment.
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For starters, it has a great long-term growth track record. Although revenue did fall last year during Covid-19, pre-pandemic revenue climbed from £192m in 2015 to £289m in 2019. Analysts expect revenue of £302m for 2021 and £328m for 2022.
Secondly, it’s a very profitable company. Over the last five years, return on capital employed (ROCE) has averaged 854%. No other FTSE 100 company has a five-year average ROCE figure anywhere near this. In other words, RMV has been the most profitable company in the index over that period by a wide margin.
Third, it has a powerful brand and is very dominant in its industry. In the first half of 2021, its market share of time on property portals was a high 90%. This gives the company pricing power. The fact that it has the ability to raise its prices is reassuring in the current environment where inflation is very high.
But Rightmove shares aren’t cheap. Currently, the stock sports a forward-looking P/E ratio of about 32, using next year’s earnings forecast. This adds a bit of risk. If Covid-19 forces the UK into lockdown again, the stock could fall.
However, I’m comfortable with this valuation. Given the quality of the business here, I think this FTSE 100 stock deserves a higher multiple.
One of the FTSE’s best tech stocks
Another lead index super stock I’d snap up today is Sage (LSE: SGE). It’s a leading provider of cloud-based accounting and payroll solutions to small and mid-sized businesses.
Like Rightmove, Sage is a high-quality business. Over the long term, the company has generated consistent growth. And profitability has been excellent. Over the last five years, return on capital employed has averaged 17%.
Sage has been transitioning to a software-as-a-service (SaaS) business model over the last few years. While this has impacted growth, it now appears to be paying off. Earlier this month, Sage said it expects organic recurring revenue growth of 8-9% for the year ending 30 September 2022, up from 5.4% last year. CEO Steve Hare noted that, having reshaped the group, he was confident Sage would deliver further sustainable growth.
One risk to consider here is competition from new entrants. New Zealand-based Xero is one company I’m keeping a close eye on. It has a very good offer and could potentially steal market share from Sage.
I think this risk is factored into the share price however. Currently, Sage has a P/E ratio of around 30, which is quite low for a software company with a high level of recurring revenues.
It’s worth noting that analysts at Jefferies recently raised their target price to 900p – about 17% above the current share price.
