I’m peeking out from my bunker this morning as all those share prices crash around me. At times like this in the markets, the last thing you probably feel like doing is buying more shares.
But maybe you should. Warren Buffett is always encouraging us to be greedy when others are fearful, and right now, I reckon many investors are petrified as the markets lunge lower. But the idea behind Buffett’s advice is that we can often find opportunities to buy better value, which could lead to gains later as markets ‘normalise’ and the underlying businesses make ongoing operational progress.
In-demand products and materials
I reckon we need to try to imagine what things will be like after the coronavirus outbreak has settled down. Which company’s services and products will still be in demand then? There are many stocks to choose between, and I like the look of FTSE 100 building materials and products company CRH (LSE: CRH).
The firm supplies materials such as aggregates, asphalt, cement, lime, ready-mixed concrete, and infrastructural steel. It also makes and supplies value-added products, such as paving, blocks, patio items, and glazing systems. I reckon such basics will be in high demand over the next decade or so, particularly in Brexit Britain, which seems determined to shift into a higher gear when it comes to infrastructure spending.
CRH divides its business into three divisions: Americas materials, which accounted for around 41% of revenue during 2019, Europe materials at 34%, and Building Products 25%. Today’s full-year report reveals to us that 2019 was “another year of growth” due to positive demand in the Americas and in “key” regions in Europe. The directors explained in the report the firm saw “good” contributions from acquisitions and “tailwinds” from currency exchange movement.
Overall revenue came in 6% higher than the previous year and like-for-like revenue moved 3% higher, suggesting strong trading. Diluted earnings per share from continuing operations shot up by 25%. The directors pushed up the total shareholder dividend for the year by 15%, which I reckon shows their satisfaction with the results and optimism about the outlook.
Strong cash performance and a positive outlook
The cash performance has been good as well. Net cash from operating activities shot up to €3.5bn, which compares with €1.9bn the prior year. Meanwhile, net debt eased back to €6.7bn from €7bn. The directors reckon the good outcome arose because of the firm’s “relentless focus on cash management.”
CRH strikes me as being a bit like a giant snowball rolling along and getting bigger as it helps consolidate the small players in its markets. For example, around €0.7bn went into 62 acquisition/investment transactions in 2019. And sometimes bits drop off the snowball, as demonstrated by the 11 divestments/disposals, which generated proceeds of €2.1bn in the period.
The directors reckon their ongoing focus on portfolio refinement, margin expansion, cash generation, and enhanced returns for shareholders will lead to a year of further progress in 2020. And I’ve skimmed through the statement today and can’t find any mention of the coronavirus and how it may affect operations.
Meanwhile, with the share price close to 2,647p (and falling), the dividend yield for the current year runs near 2.7% and City analysts project single-digit percentage increases ahead. I’m watching this one and stand ready to pounce.
