The FTSE 100 index is packed full of the biggest listed companies from every industry. I currently have a spare £1,000 and I think I’ve found two firms from the index that could bring diversity to my long-term portfolio. In addition, they have strong historical results and may well have favourable conditions going forward. Why am I drawn to these two businesses specifically? Let’s take a closer look.
A FTSE 100 stalwart: InterContinental Hotels Group
The first company is InterContinental Hotels Group (LSE:IHG) that operates a number of hotels across North America, Europe, the Middle East and Greater China. Its brands are instantly recognisable and include Holiday Inn and Regent Hotels.
For the calendar years 2017 to 2021, earnings-per-share (EPS) decreased from ¢244.6 to ¢144. Furthermore, revenue stayed broadly the same at $2.9bn. Usually, this earnings record would set alarm bells ringing in my head, because I like to see consistent earnings growth. What this tells me, however, is that the Covid-19 pandemic took a huge toll on the IHG business.
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On closer inspection, I am heartened to see that the company swung to a 2021 profit of $361m. This was a vast improvement from a $280m loss in 2020. It now seems that the hotel firm is on a better track, given that the pandemic appears to be subsiding. It is worth noting, however, that any Covid-19 resurgence could have a negative impact on the IHG share price.
Additionally, the business reinstated its dividend in its recent annual results, after suspending it in 2020. It will amount to ¢85.9 per share.
With international travel final becoming easier, Deutsche Bank also increased its price target for the stock from 5,610p to 5,700p in February 2022. It currently trades at 5,008p.
North American support services: Ferguson
The second FTSE 100 company I’m buying is Ferguson (LSE:FERG), a support services firm specialising in heating and plumbing products. Operating in the US and Canada, it has a strong results record.
For the years ended in July, between 2017 and 2021, its EPS grew from ¢366.1 to ¢688.1. By my calculations, this is a compound annual EPS growth rate of 13.4%.
Furthermore, revenue increased from $1.9bn to $2.2bn over the same period. This company clearly exhibits strong growth.
What’s more, S&P stated in January that US house prices increased at the sixth-fastest rate of the last 34 years. This likely means more demand for heating and plumbing services.
It is worth noting, however, that Ferguson may be slightly expensive at current levels. It has a forward price-to-earnings (P/E) ratio of 18.38. That is higher than competitor Travis Perkins with a forward P/E ratio of 13.09.
However, investment bank Berenberg raised its target price from 10,000p to 11,200p in December 2021, owing to “very favourable” market conditions in the US. It currently trades at 11,515p.
Overall, these two FTSE 100 companies may provide diversity for my portfolio. In addition, both firms could benefit from favourable environments going forward in the hotel and housing markets. I will be using my spare £1,000 to buy shares in both businesses.
