With the S&P 500 hitting record highs, 2014 has been something of a disappointment for the FTSE 100. Indeed, the index is up just 1% since the turn of the year, but does seem to have huge potential over the medium term. That’s because it trades on a price to earnings (P/E) ratio of just 13.8 and has a yield of around 3.5% — both of which indicate that the index could push northwards.
However, here are three shares that despite the FTSE 100’s potential, could still outperform the UK’s main index.
ARM
Although shares in ARM (LSE: ARM) have fallen by 12% during the course of 2014, the intellectual property business could beat the FTSE 100 going forward. That’s because it offers investors a vast amount of growth potential, with the company’s earnings per share (EPS) expected to increase by an impressive 23% in 2015. Furthermore, with shares in ARM having fallen, they now represent much better value for money. Indeed, although ARM’s price to earnings (P/E) ratio remains high at 41.5, its price to earnings growth (PEG) ratio of just 1.5 means that it could outperform the FTSE 100 over the medium term.
GlaxoSmithKline
As with ARM, 2014 has been a tough year for GlaxoSmithKline (LSE: GSK). Its shares have dropped by 9% and the company continues to suffer from weak sentiment due to bribery allegations. However, GlaxoSmithKline also has a highly diversified and capable drugs pipeline that has the potential to deliver brisk earnings growth in future years. Certainly, all drug pipelines come with a large dollop of uncertainty, but GlaxoSmithKline appears to have a well-balanced pipeline that should benefit from a renewed focus by the company after the sale of its consumer brands. In the meantime, a yield of 5.6% should help to push investors’ total return above that of the FTSE 100.
Diageo
Diageo (LSE: DGE) is also down in 2014, with the alcoholic beverages company seeing its share price fall by 12% year-to-date. However, demand for premium alcoholic drinks should remain robust in the long run – even if the world economy does fall back into negative growth territory. Moreover, Diageo’s strong stable of brands should ensure that demand for its products remains buoyant in developed nations, while emerging markets such as China and India present a huge opportunity for the company to increase its sales and profitability. As a result, it could have a much brighter future and has the scope to beat the main index moving forward.