Should I buy the FTSE 100’s 10 top-performing stocks of the last 10 years?

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The returns of the FTSE 100 invariably include some big outperforming stocks and some big underperformers. For example, the 10 biggest winners of the last 10 years delivered an average annualised total return of 30.6%, smashing the Footsie’s 8.3%. Can these stocks continue to provide rampant returns for investors buying today?

The top 10

The table below shows the index’s top performers for the 10 years to the end of 2018.

CompanyBusiness10-year annualised total return (%)Forecast P/E 2019Forecast dividend yield 2019 (%)
AshteadConstruction & industrial equipment rental45.110.62.0
RightmoveOnline property portal38.723.91.5
Taylor WimpeyHousebuilder30.27.811.1
Smurfit KappaPaper & packaging30.18.64.0
Hargreaves LansdownRetail investment platform29.332.02.4
Barratt DevelopmentsHousebuilder28.87.88.7
GVCSports betting & gaming26.011.15.0
MondiPaper & packaging25.810.73.8
Croda InternationalSpeciality chemicals25.523.12.0

I think it’s important to consider the economic context of these returns. The 10-year period started in the depths of the 2008/09 financial crisis and recession, and was followed by the economic turbocharging of quantitative easing (QE) on an unprecedented scale and a record period of low interest rates. This was a particularly favourable backdrop for cyclical industries.

Domestic cyclicals

Housebuilding is one of the most cyclical sectors of all, and it has enjoyed the added stimulus of UK government policies like the Help to Buy scheme. It’s no surprise that the  big volume builders, Taylor Wimpey, Barratt and Persimmon, are all among the top performers — and this despite a poor 2018, in which their share prices fell back 20%+.

All three now trade on super-cheap P/Es and sport super-high yields. However, I’m not tempted. The winding down of QE, rising interest rates, and the fact that the stocks still trade at a premium to their net asset values, are key factors in persuading me to avoid them at this stage.

International cyclicals

The top performer in the table, equipment rental group Ashtead, is another highly cyclical company. In the post-dotcom market downturn, its share price slumped to less than 8p by 2003 from a previous high of comfortably above 250p. Then, having climbed back to near that level, it fell to below 40p in the 2008/09 recession. The company’s really made hay while the sun’s been shining over the last 10 years, helped by acquisitions and large exposure to the US market.

International paper & packaging groups Smurfit Kappa and Mondi are similarly cyclical and have enjoyed similar success. The share prices of all three companies declined in 2018 (in the region of 8% to 16%), but I’m not convinced their low P/Es are quite low enough to offer real value at this stage of the economic cycle. As such, I’m also avoiding these three stocks for the time being.

Sector dominators and non-cyclicals

While Rightmove and Hargreaves Lansdown thrive best in a buoyant property market and buoyant stock market, respectively, they’re such dominators of their sectors that I see potential for relative resilience in the event of less favourable conditions. Their P/Es are still a little too high for me, but they’re stocks I’m keeping a close eye on.

Speciality chemicals firm Croda could repay further investigation (despite being another on a relatively high P/E), but the company that really catches my eye is GVC. It’s the only one of the stocks in a recognisably non-cyclical sector — namely, gambling. And trading on an undemanding P/E of 11.1, with a delicious 5% dividend yield, I rate it a ‘buy’.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended GVC Holdings, Hargreaves Lansdown, and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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