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I think these 2 FTSE 100 shares could be set for serious growth over 12 months

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It’s not often I start up my computer and see Ferguson (LSE: FERG) leading the FTSE 100. But that’s what happened Tuesday, with the heating and plumbing distributor’s shares gaining as much as 7% in early trading.

The wider 2020 picture is even better. The Ferguson share price slumped in the early days of the Covid-19 crash, falling even harder than the Footsie itself. But a remarkable recovery has seen Ferguson shares surge to a 12.5% gain year-to-date, while the index is still down 22%. A growth share? In the FTSE 100? in 2020? There aren’t many of those about.

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The latest uptick is all down to results for the year to 31 July. When you open with “Strong and resilient performance during highly challenging period” and “Continued robust financial position,” the figures had better be good. And they are.

There’s a 0.9% fall in revenue, and a drop of 4.8% in statutory pre-tax profit with basic EPS down 11.2%. This year, there’s many a FTSE 100 company that would love to be able to report such a relatively strong position. But Ferguson’s numbers for ongoing business look even better. The firm reported a 2% rise in ongoing revenue, with ongoing underlying trading profit up 4.1%.

Balance sheet

Right now, the crucial thing for most companies is their liquidity. A company can withstand a short-term downturn if its balance sheet is strong enough. But a FTSE 100 crisis like 2020’s can really expose those that over-extended their debts during better times and are now dangerously exposed.

Here, that’s not a problem. There’s some debt, but Ferguson can happily report a net debt-to-adjusted EBITDA ratio of just 0.6x and falling. In normal times, I’d generally consider anything under 1.5x as safe. So there’s no danger here.

Ferguson’s shares are on a forward P/E of 19, which is above average. But it’s a quality company, and I think it deserves a higher valuation.

FTSE 100 builder

My next pick is Barratt Developments (LSE: BDEV). My Motley Fool colleague Jonathan Smith says of Barratt: “I think this top growth stock could rebound strongly in the short term.”

I agree. The Barratt share price is down 37% so far in 2020, while the FTSE 100 is sitting on a 22% loss. I think that’s oversold, and it could spike upwards at any time.

The year to 30 June did see a big drop in completions, but that’s for the obvious reason. The Covid-19 pandemic pretty much halted house purchases from February onwards. But the company is still making good profits and looks to be in no real danger of struggling.

No cash problem here

Pre-tax profit came in at £492m, with EPS at 39.4p. Both of those are down around 45%, and the dividend is suspended to help retain cash. But the liquidity situation is fine, with net cash of £308m on the books.

By 31 August, the value of forward sales was already up 22%. For the current year, we’re looking at a forward P/E of under nine. I don’t know what might kick off a re-rating of the Barratt share price. Maybe a positive FTSE 100 run? Or maybe the reinstating of the Barratt dividend. The company has said that “when the board believes the time is right, it will implement a dividend policy based on a dividend cover of 2.5 times.”

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Alan Oscroft 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.

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