Investing legend Peter Lynch said that “the best stock to buy is the one you already own.”
So, with this in mind, here are two stocks I own that I’m looking to add to as summer starts.
My FTSE 100 pick…
Ashtead (LSE: AHT) is an international equipment rental company that trades under the Sunbelt Rentals brand and operates in the UK, Canada and the US. Around 80% of its FY22 revenue came from the latter, where only United Rentals has a larger share of the equipment rental market.
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While the US is undoubtedly a great market to be in long term, due to its sheer size and infrastructure spending, the immediate economic outlook there remains cloudy. Higher interest rates could deter new home buying and therefore construction. Consequently, overall rental demand could decline.
This uncertainty probably goes a long way to explaining why the share price is 23.5% lower than it was 18 months ago.
However, I’m taking the long view here. The US government has committed to significant increases in infrastructure spending over the next few years. There’s the Infrastructure Investment and Jobs Act, as well as The Inflation Reduction Act and The Chips and Science Act.
As a leading tool hire brand, Ashtead is incredibly well positioned to benefit from these construction mega-projects.
Meanwhile, the stock is trading on a forward price-to-earnings (P/E) multiple of 14. For a high-quality business continuing to gain market share in a fragmented rental market, I rate that as good value.
The dividend yield is modest at 1.4%, but the company is buying back $500m of its own shares between now and April 2024. The stock is currently at the top of my buy list.
…And a FTSE 250 stock
Volution Group (LSE: FAN) specialises in energy-efficient residential and commercial ventilation systems in the UK, Europe and Australasia. That’s everything from extractor fans to mechanical heat recovery units. It also sells non-ventilation products such as heated towel rails and radiators.
The stock is down 18.5% over the last 18 months as the firm has encountered inflationary and supply chain pressures. And while these challenges haven’t disappeared entirely, things seem to be looking up.
In the six months to 31 January, the firm’s revenue increased 8.5% year on year. All three regions grew organically while pre-tax profits rose 5.6% to £22.6m. Its adjusted operating margin weakened slightly, but at 21.1% it remains very healthy and above the group’s 20% target.
Impressively, its UK residential revenue increased 16% during the period. This was driven by “a very noticeable increase in demand in social housing”, according to CEO Ronnie George.
One big change here is that homeowners, landlords and tenants are becoming increasingly aware of the health dangers of underventilated properties, especially in relation to damp and mould. And social housing providers have been ordered by the government to upgrade their properties, which should continue to benefit Volution.
Analysts are expecting net profit of £42.8m for the firm’s current financial year (ending 31 July). At today’s price, that would put the shares on a fairly undemanding P/E multiple of 18.
I have a small position in this under-the-radar stock, but I’m keen to add more shares to my portfolio in June.
