2019 has started on a relatively good note for the FTSE 100 with the index showing a largely upward trajectory in January so far. However, the absolute levels are still much lower compared to the same time last year, indicating persistent caution among investors.
But the long-term investor shouldn’t fear ‘buying fear’, I believe.
This is especially so if the companies they are interested in are strong businesses that have proven their ability to weather not just market gyrations but also economic cycles. Some examples of such companies I have written about in the past include accounting software specialist The Sage Group and the paper-based packaging provider Smurfit Kappa.
Another company that I feel shows such promise is rental construction equipment provider Ashtead Group (LSE: AHT). If you are not sure of the merit in buying shares of this company, here are three reasons that could convince you otherwise.
Dominating the cycles
First, the company seems to be little affected by economic ups and downs in the past five years. If that wasn’t so, the fact that the majority of its revenues come from its US subsidiary Sunbelt US (accounting for 84% of the total for the year ending April 30 2018) might be a bad thing. An expected cooling off in US growth in 2019 to 2.3% from 3% in 2018, as per the Federal Reserve, could therefore be a potential red flag for the company.
However, when I compared US economic growth to the company’s revenue growth the correlation was not obvious. Therefore, I would not be overly worried about this aspect. It appears that the firm’s fortunes are more closely tied to construction industry cycles, the latest of which still has a few years of steam ahead.
Secondly and unsurprisingly, management is pretty optimistic about future performance. In its last financial update, it mentioned that it expects “full-year results to be ahead of our prior expectations and the Board continues to look to the medium term with confidence”. This outlook comes on the back of a healthy 19% increase in revenue for the half year ending October 31, and a significant 45% increase in net profit.
Hedging at a good price
And finally, with the spectre of Brexit still looming large on the horizon, this is a good time to invest in shares of companies that will be hit least. Given that most of Ashtead’s revenue is international, it’s a no-brainer that this company could find a place in a Brexit-resistant portfolio! The fact that the company is currently trading at an attractive price, also makes it a good hedge. This month so far, the share price has been over 17% below its average for the past 12 months. But the price has started inching up, breaching 1,800p after staying below these levels since mid-November last year, indicating that right now could be a good time to buy this share.