I have recently been looking for FTSE 100 shares to buy for my portfolio that may benefit from the global economic recovery.
I have found one stock that I believe is so attractive, I would invest £5,000 in the opportunity.
Compared to other investments, I believe this is one of the best-placed business to profit from the economic expansion in the next couple of years and beyond.
FTSE 100 stock
Ashtead Group (LSE: AHT) is an international equipment rental company with national networks in the US, UK and Canada. The organisation primarily rents out equipment to the construction industry.
This business can be incredibly profitable. Most building contractors don’t acquire their equipment because it is costly and is used infrequently. Therefore, it is more cost-effective to rent the equipment when it is needed.
Companies like Ashtead can make huge profits by buying the equipment and renting it out daily. The stock’s return on investment in the United States was 20% last year. That implies that for every $1 invested, the business was earning $0.20. This is undoubtedly a great return when interest rates are around 0%.
Such a high return may attract competitors, which is one of the big challenges facing the enterprise. It could also threaten growth.
The FTSE 100 stock is already profiting as the construction industry around the world recovers. According to its fourth-quarter trading update, rental revenue increased 15% in the fourth quarter of its 2021 financial year.
Overall operating profit for the quarter increased 95%. For the year as a whole, rental revenue increased 1%. That’s all the more impressive considering the fact that the construction industry was virtually at a standstill this time last year.
And as the economy begins to gain traction, I think Ashtead’s revenues and profits should continue to expand. Infrastructure spending in the UK and Joe Biden’s new $1.2trn US infrastructure spending bill should support activity in the construction sector in the following years.
Risks and challenges
I think Ashtead has all the hallmarks of an excellent investment, but the company may suffer if the economic recovery slows. Indeed, construction is usually the first part of the economy to suffer in a recession.
What’s more, as the FTSE 100 company uses gearing to improve returns by borrowing to buy equipment, its profits could drop faster than the rest of the sector. However, strong profit generation recently has enabled the firm to reduce debt.
Net-debt-to-EBITDA was 1.4x at the end of April, compared to 1.9x in 2020.
Despite these risks and challenges, I think the FTSE 100 company could be the perfect way to play the economic recovery in the UK and across the pond.
While the firm will face challenges as we advance, this is the same with all enterprises. I think the potential rewards on offer far outweigh these risks.
That is why I’d be willing to invest £5,000 of my hard-earned money in the enterprise right now.
The post A FTSE 100 stock I’d buy with £5k appeared first on The Motley Fool UK.
Rupert Hargreaves 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.
Motley Fool UK 2021