2 FTSE 100 stocks I believe could outperform over the next decade!

During the last 10 years, the FTSE 100 leading index of stocks has delivered an average annual return of 6.3%. That’s a few percentage points below the long-term average stretching back to the Footsie‘s creation in 1984.

Can it pick up the pace over the next decade? I’m quietly confident it can, as fading appetite for US shares drives investor interest in cheaper UK stocks.

However, a better way to source superior returns could be by purchasing individual shares than a FTSE tracker fund. Both BAE Systems (LSE:BA.) and JD Sports Fashion (LSE:JD.) are blue chips I think could outperform the broader index through to 2035.

Here’s why.

BAE Systems

Defence giant BAE Systems has already proven it has what it takes to beat the broader FTSE 100.

Since 2015, the tier one contractor’s share price has risen from 423p per share to £19.54 today. It’s also paid dividends totalling 235.3p per share.

As a consequence, BAE shares have delivered an average annual return of 17.9% over the period.

The bulk of these gains have come following Russia’s invasion of Ukraine in 2022. Sales since then have soared as key NATO customers have rapidly rearmed — BAE’s order book was a record £77.8bn at the end of last year.

I’m optimistic the company’s shares can continue rising strongly as, regardless of an uncertain outlook for US arms military spending, cumulative arms expenditure in the West still looks set to ignite. NATO members are expected to agree to spend 3.5% of their GDPs by 2035 at the security bloc’s next summit later this month.

One potential obstacle could be the historically high valuation that BAE shares currently commands. Its forward price-to-earnings (P/E) ratio is 25.5 times, making it one of the UK’s most expensive defence shares.

However, I think the FTSE 100’s enormous scale and market-leading positions in multiple areas warrant such a premium. It could prove one of the best stocks to buy as the geopolitical landscape changes.

JD Sports Fashion

Unlike BAE Systems, JD Sports shares have sunk in value more recently. Yet over a long time horizon the retailer’s still outperformed the broader Footsie index.

At 82.1p per share today, the sportstwear specialist is substantially more expensive than it was 10 years ago when it changed hands at 26.3p. With it paying total dividends of 4.91p per share, too, the total average annual return here is 12.7%.

JD’s strong historical performance was thanks to the strength of its market position in the fast-growing athleisure market, and more specifically at the premium end which has expanded especially rapidly. It’s also reflected the company’s successful global expansion strategy which gives it footholds in Europe, North America, and Asia.

But the company faces serious challenges that could compromise future performance. Retail sales are under pressure as consumers tighten their pursestrings, resulting in its weakening share price more recently. And sales could worsen and costs balloon if bruising trade tariffs remain in place.

I’d argue, though, that these risks are reflected in JD’s ultra-low valuation today. It trades on a forward P/E ratio of just 7.1 times, well below its 10-year average of 16-17 times. This provides a base from which the company could rebound, as continuing worldwide expansion supports a long-term sales recovery.

The post 2 FTSE 100 stocks I believe could outperform over the next decade! appeared first on The Motley Fool UK.

More reading

• Should I buy more BAE Systems shares at just over £19?
• BAE Systems shares have soared 275% in 5 years – it’s also a secret dividend superstar!
• £20,000 of BAE shares in an ISA this year is now worth…
• The JD Sports share price may be down but I don’t think it’s out!
• 2 standout FTSE 100 growth shares I think are too cheap this June!

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. 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.