As investors, we’re always looking for stocks that can beat the index. After all, if we were happy to merely track the index then buying an index tracking fund would mean having more spare time and potentially lower transaction costs.
That’s not to say that the FTSE 100‘s returns are disappointing, with the index having risen from just 1,000 points in January 1984 to its present level of over 7,000 points. During this time, though, there have been a multitude of companies that have grown at a much faster rate than the wider index and, looking ahead, two stocks from the technology space that could do so are Spirent (LSE: SPT) and Imagination Tech (LSE: IMG).
Certainly, both companies are likely to be more volatile than the wider index over the medium to long term, with their bottom lines arguably being less stable than the index. However, they are both expected to deliver index-beating growth over the next two years, with Spirent’s profit set to be 45% higher in 2016 than it was in 2014, with Imagination Tech’s bottom line set to be 69% higher in 2017 than in the current year.
And, with both stocks trading on price to earnings (P/E) ratios of 18.6 and 36.5 respectively, they seem to offer very good value for money when you consider than the FTSE 100 has a P/E ratio of 16 and a growth rate in the mid to high single digits.
The same level of value is also on offer outside of the technology space. For example, Hikma (LSE: HIK) is expected to increase its bottom line by 18% in a relatively challenging period for the wider pharmaceutical sector. And, with it having a P/E ratio of 21.7, it offer considerable upside, while a beta of just 0.58 indicates that if the FTSE 100’s progress is somewhat disappointing, it could prove to be a relatively defensive stock.
The future for Reckitt Benckiser spin-off, Indivior (LSE: INDV), looks far less upbeat. That’s because sales for its main drug, suboxone, are on the decline and the company’s bottom line is set to fall by 58% this year and by a further 19% next year. Certainly, it has the financial resources to replace its key drug, but investor sentiment may not remain as positive as it has been in recent months where Indivior has outperformed the FTSE 100 by 28% since the turn of the year. As such, it may struggle to beat the FTSE 100 moving forward.
However, one stock that looks set to have a strong medium to long term is Rolls-Royce (LSE: RR). It is expected to bounce back from a tough period with growth in its bottom line of 8% next year and, with former ARM CEO, Warren East, set to make significant changes to the business as he seeks to focus on engineering innovation and a more efficient business model, this could be a great time to buy Rolls-Royce ahead of what could prove to be an exciting period for the business.