Are these really the 3 ‘best’ FTSE 100 stocks?

Choosing FTSE 100 stocks is a subjective business. Investors have different risk appetites, objectives, and ethical boundaries. With this in mind, which are the ‘best’ stocks on the index?

In the beginning

First, I’m eliminating seven ‘sin’ stocks. Many object to investing in energy, defence, and tobacco companies. Next, I’m dismissing six miners as their earnings are just too volatile.

I’m also saying goodbye to three telecoms companies and four utilities. These sectors have high debt levels and the returns on capital employed (ROCE) are lower than most other industries.

Also, 10 retailers are out because, generally speaking, they have below-average earnings growth rates. I’m including 3i Group here as 75% of the value of the investment company’s portfolio comes from Action, one of Europe’s largest non-food discount chains.

I’m also removing eight companies with exposure to the residential and commercial property markets. Lack of growth and — in some cases — large borrowings are a concern.

I’m not saying all these companies should be ignored but, remember, we’re seeking ‘perfection’ here!

More to do

This leaves 63. So I’m going to cull 43 that are yielding less than the FTSE 100’s current (12 October) 3.05%. This might seem harsh but they’re my rules!

Now, let’s remove those with a historic price-to-earnings (P/E) ratio above the index average of 15. Admittedly, this isn’t very scientific as multiples vary between industries, but we have to start somewhere when assessing value for money.

Of the remaining eight stocks, seven are in financial services.

Next, I’m eliminating four that don’t have a consensus Buy rating among brokers. I know this is only a snapshot of opinion but it’s helpful when weighing investment decisions.

However, I’m bidding farewell to IG Group after its shares plunged 22.6% on 2 October, following a disappointing trading update.

Then there were three…

The shortlist:

Intermediate Capital Group, the alternative asset manager, has more than doubled its fee-related earnings per share (EPS) over the past four years. And 11 out of 13 analysts rate it a Buy.

Like Intermediate Capital, specialist bank Investec‘s results are sensitive to wider macroeconomic conditions. But it’s increased its EPS by 50% since 2021, and only cut its dividend once in 18 years.

Finally, there’s consumer health and hygiene company Reckitt Benckiser Group (LSE:RKT). Since 2021, it’s grown its adjusted EPS by 22% and improved its ROCE by four percentage points.

Potential risks include a heavy reliance on 11 brands (71% of revenue in 2025) and supply chain inflation squeezing margins.

However, none of the 21 analysts covering the stock are advising Sell. Six consider it a Strong Buy. In fact, the consensus is that the group’s shares are 24% undervalued. And its yield of 4.3% puts it in the top 20% of FTSE 100 dividend payers.

It could also be viewed as a defensive stock. Whatever the state of the economy, painkillers and cleaning products – it owns Nurofen and Dettol, for example – will still be needed.

Is there a winner?

Are these three the best? I’m not sure. I’d need to do more research before deciding whether any are worth considering. To be honest, I didn’t expect them to be in the top three. It demonstrates that nothing should be ruled out when it comes to investing…

Should you invest £5,000 in Reckitt Benckiser Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Reckitt Benckiser Group Plc made the list?

James Beard does not hold any positions in the companies mentioned.