I’ve been looking for the best FTSE 100 shares to buy now for the economic recovery. And I’ve been concentrating on engineering companies because I think these businesses have the most potential as the recovery builds.
Figures indicate that the UK manufacturing sector is expanding rapidly. And as businesses struggle to keep up with demand, they’re hiking prices. I think these twin tailwinds of rising prices and high demand will turbocharge growth at FTSE 100 engineering companies.
Best shares to buy now
There are three companies in the blue-chip index I’d buy. The first is Melrose (LSE: MRO). This engineering conglomerate is already reaping the benefits of the recovery.
According to its half-year report, adjusted revenues rose to £3.8bn in the six months to the end of June, compared to £3.6bn in the prior-year period. The group reported post-tax profit of £109m compared to a loss of £80m last year.
The engineering enterprise has been able to return 15p per share to investors after disposing of its Nortek Air Management and Brush businesses. Management also believes the group’s balance sheet has “spare capacity for a significant further capital return next year.”
This potential for additional cash returns is one of the reasons why I believe this is one of the best shares to buy now in the FTSE 100.
Melrose is an expert at buying, building and selling engineering businesses. Meanwhile, Spirax-Sarco Engineering (LSE: SPX) is an expert at thermal energy management and pumping. Both of these categories help their end users improve production efficiency and meet environmental sustainability targets.
As companies are increasingly focusing on environmental factors, demand for the business’s services is growing. Revenues increased 17% on an organic basis for the six months to the end of June. Pre-tax profit rose 39%.
As wages rise, I think demand for the group’s services will continue as its customers try to streamline and improve their operations’ efficiency. That’s why I would buy the stock for my portfolio today, and I believe it’s one of the best shares to buy now in the FTSE 100.
FTSE 100 infrastructure giant
The final stock I’d buy for my portfolio is CRH (LSE: CRH). This isn’t technically an engineering business, but it does supply materials to the construction sector.
As activity in the manufacturing and industrial sectors expands, demand for its products is growing. Sales grew 3% on a like-for-like basis in the first quarter of its financial year. Sales of building products were particularly strong, with like-for-like sales up 12%.
High levels of construction activity in the residential market, as well as infrastructure spending around the world, is driving this growth. I think these tailwinds will remain in place for some time. That’s why I believe this is one of the best stocks to buy now in the FTSE 100.
Having said all of the above, these equities may not be suitable for all investors. The construction and engineering sectors are usually the first to suffer in a downturn. As such, if the economic recovery stutters, these companies’ growth could grind to a halt. Rising materials and wage costs could also impact profit margins. I’ll be keeping an eye on these risks as we advance.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Melrose. 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.