The Motley Fool

Have £3,000 to spend? A cheap FTSE 100 stock I’d buy following this news

CRH (LSE: CRH) is a FTSE 100 stock that’s really got the bit between its teeth right now. The building materials giant’s share price rose 15% in quarter one and has continued its rapid ascent in April, hitting eight-month peaks above £26 per share in recent sessions.

However, it wasn’t a shock to see CRH’s investors head for the exits towards the end of last year as fears over the health of Western European and North American economies grew. The company sources more than 90% of revenues from these regions, with sales generated in the former fractionally shading those created in the latter.

Despite its reliance on strong conditions in these established regions though, and its tiny exposure to faster-growing economies in Asia, Latin America and Central and Eastern Europe, City analysts are expecting profits at the firm to actually pick up. A 21% bottom-line advance is forecast for 2019, up from 11% last year.

Strong markets

Even though broader economic conditions in its core markets remain a little uncertain, critically for CRH the construction markets in the US and Europe remain quite robust. In fact, most recent evidence shows they are going from strength to strength.

The latest report from the Commerce Department showed construction spending in the United States struck nine-month highs in February after a 1% rise. This was the third monthly increase on the bounce and was helped by government expenditure hitting record highs and spending on private construction projects advancing too.

Construction conditions in the eurozone have also bounced back more recently, with output here jumping 3% in February, according to Eurostat. And this represented the best month-on-month improvement for exactly two years.

The elephant in the room remains the poor condition of the US housing market though, the latest health check on which the Commerce Department showed new home starts in March fell to their lowest level since mid-2017. Helped by falling mortgage rates though, many commentators believe a bounceback is just around the corner.

Making a statement

Conditions appear ripe for CRH to continue thriving then, allowing it to release some more great trading statements like the one from earlier this week.

In its first-quarter update it declared it had made “a positive start to the year” with like-for-like sales up a bulky 7% from the corresponding 2017 period. Sales volumes benefitted from good weather in its markets and it enjoyed good momentum across most of its major markets, it added, while pricing improvements across its main product lines also helped boost the top line.

What’s more, CRH said group EBITDA is likely to rise to €1.5bn for the first half versus the €1.13bn created a year earlier and, barring any major market disruption, earnings for the second half should also be ahead.

CRH is clearly in great shape yet, at current prices, it trades on a forward P/E ratio of just 14.5 times. Such a low valuation leaves plenty of scope for its share price to keep rising then. I expect it to do just that as 2019 progresses.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.