It is easy to look back and pick out the FTSE 100 stocks that have been the market’s winners over the past 10 years today. But it’s far, far harder to pick out winners for the next decade.
Companies that are succeeding today may fall from grace next year. There’s just no way of telling what’s around the corner.
Still, I think there are a handful of companies in the FTSE 100 that can succeed over the next decade.
Should you invest £1,000 in Centrica right now?
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Buy and hold
When looking for companies that I intend to buy and hold for an extended period, I try to focus on businesses with a substantial competitive advantage.
This advantage can come in different forms. Some examples are size, reputation and access to information, such as data.
The London Stock Exchange has a strong reputation, is one of the largest financial services companies in Europe, and has access to an unrivalled stream of data. These impressive qualities are why I’d be happy to buy and hold the stock for the next decade.
As the operator of the London Stock Exchange, the LSE has a strong advantage in that competitors just won’t be able to replicate what it does. Other companies have tried to set up new exchanges, but none have matched its success.
The firm also has a strong foothold in the clearing market. This involves the settling of financial trades and is a low margin, high volume business.
It’s also a sector where reputation counts. While the company does face challenges in this market, not a single challenger has the financial clout or scale of the LSE.
I think Flutter Entertainment has similar qualities to its FTSE 100 peer. The online gambling company owns some of the best-known gaming brands in Europe. It’s also expanding into the US, bringing its size and scale to bear in this relatively underdeveloped market.
As the global online gambling market is incredibly competitive, scale counts. Flutter’s size (it’s one of the largest listed companies in the country) means it can afford to spend huge sums on marketing and technology to stay ahead of the competition.
Having said all of the above, both Flutter and the LSE face some key risks. One is staying ahead of the competition. Their size should help with this, but they can’t take it for granted.
Companies that take their market share for granted can end up loosing their lead to more nimble competitors. Rising costs may also hurt profit margins at both firms.
FTSE 100 trust issues
As well as the FTSE 100 companies outlined above, I’d also buy Aviva to hold for a decade.
I like Aviva as a buy-and-hold investment because it’s a pension and life insurance provider. As such, the company has to have a long-term outlook on things. It also has to make customers feel as if they can trust the group until they retire. And if customers can trust the business, I reckon investors can as well.
Still, that doesn’t guarantee the enterprise will always be able to avoid challenges. Headwinds, such as increasing costs due to regulation and rising interest rates, may impact profitability in the long run.
