It is a common misconception that investors need to buy risky shares to earn a high return. But it is possible to make high returns from blue-chip, FTSE 100 stocks. It might take a little longer, but I think that is preferable to taking on more risk.
With that in mind, here are three FTSE 100 stocks that I believe can double my money over the next few years. I would be pretty happy to buy all of them for my portfolio, considering their potential.
Banking recovery
The first company on my list is NatWest (LSE: NWG). I feel this enterprise has the potential to double my money for two reasons.
First of all, it looks cheap. Shares in the lender are changing hands at a price-to-book (P/B) value of approximately 0.65. This suggests that they could increase in value by 52% if the stock trades up to book value.
Technically, if a company is profitable, it deserves to be valued at or around book value. As the bank’s profits increase, I think the valuation will improve.
I think the stock could also boost my returns through a combination of profit growth and dividend income. The shares are set to support a dividend yield of 4.3% next year. This income, combined with a re-rating of the stock, could provide a total return of more than 100% over 10 years.
However, if growth comes to a halt, these returns may not materialise. Another economic crisis is probably the biggest threat to the company’s growth.
FTSE 100 recovery
Another company that I believe can double my money over the next decade is the catering group Compass (LSE: CPG).
Historically, this business has grown through a combination of acquisitions and organic growth. Before the pandemic, the corporation was growing in excess of 10% per annum.
I see no reason why the group cannot return to its previous strategy. There are plenty more targets out there for the firm to acquire for its portfolio. What’s more, as humans will always need to eat, there will always be a need for its services.
Assuming the organisation can continue to grow at 10% per annum, and its share price tracks this growth, the stock could double my money in just over seven years.
Headwinds that could upset this target include inflation and rising wage costs. These could weigh on profit margins and demand for the company’s services.
Incoming champion
The final company on my list is income champion Phoenix Group (LSE: PHNX).
This corporation manages books of life and pension policies. Using economies of scale, it can push down operating costs and extract cash synergies from newly acquired books of business.
As a result of this strategy, Phoenix is a dividend champion. The stock currently supports a dividend yield of 7.4%. If I reinvest this dividend year after year, I would be able to double my money after nine-and-a-half years, according to my calculations.
The risk of using this approach is that the company decides to cut its dividend. This could upend my strategy. It would be challenging to double my money with the enterprise if it does go down this route.
That said, there is also potential for capital gains. The stock is trading at a forward price-to-earnings (P/E) multiple of just 8.5, which looks cheap.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.
