You’ll never guess where these FTSE 100 stock ideas came from
Peter Lynch, legendary manager of the Magellan fund in the 70s and 80s, tells about one of his best investments. It was very simple.
His wife tried a new pantyhose brand called L’eggs and thought it was awesome. Lynch did some research and bought shares in the owner of the mark. Eggs drastically changed the hosiery market and made a 10-fold return on investment.
He believes that if ordinary people like you and I keep an eye on investment ideas in our daily lives, we will see potential winners all around us.
Now with my eyesight I really need both eyes just to avoid stepping through glass doors and so on. But over the years I have managed to develop what I consider a little Peter Lynch, sitting in my peripheral vision warning me of possible investment opportunities.
Due to a family connection, I recently found myself forced to watch a pilot BBC sitcom called “Silky Hotel”.
The hotel is in trouble. The attractions of “Puffy gauze from The Meatloaf Suite”, the “Twinkling lights on the Kem & Amber terrace”, and the “Brokeback Mountain Original Tent Stake” no longer attract punters as before.
In a final roll of the dice to avoid insolvency, the owners attempt to get Silky on a reality TV show in search of the world’s most romantic hotel.
Of course, for comedy to work, there has to be some truth to its heart. And, as the end credits rolled by, little Peter Lynch on my shoulder whispered two FTSE 100 names in my ear.
How to make hotels
Pentecost BreadPremier Inn hotels may not be the most romantic in the world, but they are appreciated for the consistency of the experience they provide and their reliability in meeting or exceeding guest expectations.
Of course, there are a few large independent hotels around. But there are also a lot of real hellholes, like Silky’s. Naturally, there has been a long trend in migrating guests from independent hotels to branded hotels, especially in the economy segment of the market.
Premier Inn has grown into the UK’s largest chain, with over 800 hotels and 79,000 rooms. But the market is still quite fragmented (the independents have a 48% share) and Whitbread believes it is possible to upgrade Premier Inn to at least 110,000 rooms.
In addition, the company recently established itself in Germany, where the market is not only larger, but also more fragmented (independents hold 72% of the shares). There is execution risk, but replicating the British success of Premier Inn in Germany represents a huge growth opportunity for Whitbread.
I am sometimes a user – and a fan – of Premier Inn, but I can’t say the same for reality TV. Nonetheless, I can see that the British public has an insatiable appetite for it, and it shows, as ITV‘s I am a celebrity and Island of love, develop into valuable international franchises.
Of course, the company does more than just reality TV. And more than you might think. For example, he produces the hit drama series Course of action for the BBC.
Its streaming platforms are also experiencing strong growth, while under the hood there are other growth drivers in the form of its advanced Planet V advertising platform and a growing portfolio of investments in innovative companies in start-up phase in the ever-changing entertainment landscape.
ITV certainly faces challenges in responding to the changing landscape, as well as attracting and retaining the best creative talent. Nonetheless, the company appears to be strongly positioned to continue producing hugely popular content and exporting the best of Brits to the world.
Like many so-called salvage stocks, ITV and Whitbread have lost their boil since peaking after the crash earlier this year. Both are currently trading at significant discounts from these highs. For me that makes them even more interesting.
I have only sketched the growth potential of the two companies, some of the risks and the possibility of stock value. You would like to know a lot more before deciding whether there is an interest in investing in one or both.
So if Whitbread and ITV aren’t my silly advice for the week, what is it? Simply this: Incubate your own little Peter Lynch in your daily life, and you’ll never be short of investment ideas worth digging into.
Who knows, with the right idea, research, and analysis, you might just find an investment as profitable as L’eggs was for Lynch.
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Graham does not own any stock mentioned in this article. The Motley Fool UK recommended ITV. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.