Which of these two FTSE giants is the one to buy?

Are there still any FTSE 100 Brexit bargain stocks to be had? There surely are.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 seems like it’s turned upside down these days, with plenty of previous darlings pummeled by Brexit fallout, while less glamorous shares have been mopped up by investors looking for safety.

Flight to safety

Look at DCC (LSE: DCC), the diversified support services group. If you’d bought shares five years ago, today you’d be sitting on a 250% gain! Dividends have been modest, but with that kind of capital growth, who needs them?

There was a downwards blip after the referendum, but DCC shares quickly recovered and climbed above June’s levels, as investors looked for Brexit-safe havens for their cash. But with the shares’ valuation soaring, cooler heads brought a bit of sanity back to the party, and since 5 October we’ve seen the price fall back by 12.5%.

That does include a 5% boost on Monday, in response to a “very strong first half performance” reported for the six months to 30 September.

The company recorded a 33% rise in operating profit, with adjusted earnings per share up 31%, and upped the interim dividend by 12.5% to 37.17p per share. The forecast dividend yield for the full year stands at under 2%, but a progressive policy is always good to see.

DCC also upped its full-year guidance, saying that adjusted EPS should be “significantly ahead of the prior year and ahead of current market consensus expectations“, so does that mean it’s time to buy?

The problem I see is that the shares already looked overvalued on the current consensus, even after the last month or so of falls. And even if forecasts are uprated now, I think we’re still looking at pricey shares. Current forecasts suggest P/E multiples of 20 to 21 for this year and next, which is around 50% above the long-term FTSE average — for shares paying lower-than-average dividends.

I know good companies do command higher valuations, and I’m convinced DCC is a good company. But I just see the shares are a bit overpriced right now — I’d be looking for possible future dips before I’d consider buying.

Bargain rentals

Shares in Ashtead (LSE: AHT) have soared since the Brexit vote, and have put in a further surge since the good folk of the USA saw fit to elect Donald Trump as their next president.

The company is in the equipment rental business, offering construction equipment and the like, and its services extend across the UK, US and Asia. So it’s a picks and shovels business (which I like, as they often do well whichever end-user sector is doing best), and its international spread limits its exposure to local politics.

I see Ashtead shares as cheap, too, even after their recent gains — we’re looking at P/E estimates of 14 this year, dropping to around 12.5 next, with the shares priced at 1,415p. That’s close to the long-term FTSE average, and though the shares are not as big a bargain as they were a few months ago, I think we’re still looking at a good investment at a reasonable price.

The terrific run for the firm’s earnings per share of the past few years looks set to slow a little and PEG ratios are starting to top out, but analysts still have double-digit rises forecast, and they’re putting out a firm ‘buy’ consensus.

Ashtead would be my choice of the two.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »