In recent years, the FTSE 100 has underperformed the major US stock indices. That can largely be down to the types of companies in each index.
For instance, the S&P 500 has benefited from its large weighting towards the tech giants. Whereas the Footsie includes more banks and energy companies.
Over the past year, the FTSE 100 gained just 1%. By contrast, the S&P 500 managed a solid 29%.
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A stock-picker’s market
For investors in UK shares, it’s firmly been a stock-pickers market. Those that bought shares in Rolls-Royce a year ago more than tripled their money.
In addition, Sage Group and Marks & Spencer both gained around 60%. So there have certainly been opportunities.
But how might I find potential winners for the coming year? Many of the best performing shares start moving for a reason. This could be a surprising earnings announcement, an incoming CEO that could turnaround a business, or a new product that could boost sales.
So I’d be on the lookout for recent announcements.
Going places
One such FTSE 100 share I found recently is InterContinental Hotels Group (LSE:IHG). The Holiday Inn owner reported an annual jump in profits by 87% to over $1bn in 2023, from $540m the prior year. This was attributed to strong travel demand in all markets.
The largest jump in sales was in China, which saw revenue jump by 85%. Although many countries experienced earlier post-pandemic recoveries in travel, some are still recovering.
This bodes well for quality global travel businesses like InterContinental Hotels.
The company also raised its dividend by 10% from a year ago, and it launched a new $800m share buyback programme. Both measures are popular with investors as they enhance shareholder returns.
The business seems to be making excellent progress and has the potential to grow. It opened 275 hotels in 2023 and signed off 556 into its pipeline. And as it focuses on franchising rather than owning its hotels, it can benefits from strong margins.
Its 40% return on capital employed and 23% profit margin is exactly the kind of numbers I look for in high-quality businesses.
Bear in mind that it’s a cyclical business and any slowdown in economic growth could hamper its plans. It could also do with strengthening its balance sheet.
That said, overall, it’s a top quality FTSE 100 business. If I had spare cash, I’d add it to my Stocks and Shares ISA today.
Engines have started
Despite strong gains already, another Footsie share I’d buy is Rolls-Royce. Buying winners can often work out. It’s part-way through a transformation programme that started last year with the arrival of new CEO Tufan Erginbilgic.
Cost efficiencies, strategic initiatives and business optimisation delivered record performance in 2023. I reckon 2024 could see more of the same.
There’s some execution risk and I don’t think its share price is likely to triple again. But overall, it could be a steady performer for my ISA.
