3 Growing FTSE 100 Shares For a Market Pullback — ARM Holdings PLC, Rolls-Royce Holdings PLC and Intertek Group PLC

FTSE100Things are looking bright. Almost daily, economists tell us the ‘great recession’ is over. Britain’s economy is more or less back to its pre-recession peak. Some researchers think the economy will post a 2.9% rise during 2014. Good news abounds — UK Manufacturing output grew by 1.4% in the first quarter of the year, the strongest quarter since 2010; the construction sector is growing, and Britain’s trade deficit fell to £1.3 billion in March.

Confidence returns everywhere. Long-boarded-up retail units are reopening, new tenants restock shelves like mad, Pfizer wants to spend billions on Astrazeneca, and the FTSE 100 is once again knocking on the door of 7000.

Feeling comfortable can be a dangerous place

Whenever the index closed-in on 7000 before it dropped back, and that could happen again. Tea-leaf studiers like me point to anecdotal warnings such as the potential Pfizer deal, wagging a finger and saying things like,”look what happened after Royal Bank of Scotland bought ABN Ambro.” Big corporate deals can coincide with market tops.

Further down the stock-index food chain, shares crash daily on any missed financial targets, perhaps signalling fragility in the long bull run we’ve experienced. It won’t take much to incite another FTSE 100 plummet — how about out-and-out war in Ukraine, for example?

Feeling uncomfortable can present opportunity

If shares fall, where will I look for value? How about the fastest growing and often priciest companies in the FTSE 100? Market weakness presents opportunities to pick up some of the best-performing companies at more reasonable valuations. Here are three FTSE 100 growers I’m watching closely:

Industry services

Testing, inspection and certification specialist Intertek Group (LSE: ITRK), provides its customer-companies with a wide range of services centered around safety, regulatory, quality and performance standards. The firm’s track record on growth is impressive:

Year to December 2009 2010 2011 2012 2013
Revenue (£m) 1,237 1,374 1,749 2,054 2,184
Net cash from operations (£m) 203 194 213 234 269
Adjusted earnings per share 83p 91p 109.1p 133.1p 140.2p

Progress looks well-rounded, with top and bottom line expansion supported by rising cash flow.

Intertek delivers its services worldwide to a diverse range of industries and expands both organically and by targeted acquisition. We’ll get an update around 4 August when the firm releases it interims.

At today’s 3,044p share price, the forward P/E rating is running at almost 19, with city analysts expecting earnings to grow by 10% in 2015.

Power system engineering

Iconic British manufacturer Rolls-Royce Holdings (LSE: RR) (NASDAQOTH: RYCEY.US) is probably best-known these days for producing engines for the world’s biggest airliners and advanced military aircraft. Yet the firm also makes low-emission power systems for ships, critical equipment and safety systems for the nuclear industry, and power systems for offshore platforms and major pipelines for the oil and gas industry.

Although there is some cyclicality in the industries the firm serves, good trading progress, driven by quality engineering, keeps the company moving forward:

Year to December 2009 2010 2011 2012 2013
Revenue (£m) 10,414 11,085 11,124 12,161 15,513
Net cash from operations (£m) 859 1,340 1,306 1,255 2,040
Adjusted earnings per share 39.67p 38.73p 48.54p 59.59p 65.59p

At a share price of 1,003p, the forward P/E rating is sitting at just under 15 for 2015, with forecasters expecting 10% earnings’ growth that year. Rolls-Royce will resease interim results around 31 July.

Electronic chip design

Leading semiconductor manufacturers incorporate ARM Holdings’ (LSE: ARM) (NASDAQ: ARMH.US) chip designs alongside their own technology to create energy-efficient chips suitable for smart phones and other electronic devices.

The firm’s seemingly well-defended economic position, at the centre of the fast-moving semi-conductor industry, produces stunning financial results:

Year to December 2009 2010 2011 2012 2013
Revenue (£m) 305 407 492 577 715
Net cash from operations (£m) 97 176 194 261 315
Adjusted earnings per share 5.45p 9.34p 12.72p 14.93p 20.88p

Demand seems to be increasing with the rise of inter-device connectivity. City analysts expect earnings to grow 24% in 2015 and, at a share price of 901p, the forward P/E rating is running at about 31.

What now

With any general market weakness I'll be checking out the valuations of these three growers. But I'm also keen on a share idea for capital gains from one of the Motley Fool's top small-cap investors. His diligent research has uncovered what looks like one of the best growth shares for 2014.

Sometimes growth comes from within when a company reinvents itself and pursues a different line of operations. When that happens, valuations can remain modest, as investors are slow to catch on to the new growth potential. That's what seems to have happened with this gem. A strong recovery in profits followed restructuring and the directors predict double-digit margins driving a profits surge in the years to come.

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Kevin doesn't own shares in Intertek, Rolls-Royce or ARM. The Motley Fool has recommended Intertek.