The workman

My first pick is industrial equipment supplier Ashtead Group (LSE:AHT). This entity makes much of its profit Stateside but also has an entrenched presence in the UK. 

Its share price has been rising for the last week (up 5.71% at the time of writing), as is only fair for a company with such impressive financial fundamentals. 

Ashtead has a high operating profit margin (24.11%), meaning that it has passed the bulk of its inflation-induced expenses onto its customers.  This suggests that it will remain fairly insulated from further price rises. Reflecting this nous, its returns on invested capital outperform the majority of its rivals. 

Moreover, its growth potential makes it more than a safe store of wealth. Industrial businesses squeezed by inflation tend to rent new equipment rather than cough up for expensive new machinery. 

Consequently, Ashtead’s clientele is expected to grow, a feat that will undoubtedly be reflected in its share price. 

The aristocrat

Up next is the blue-blooded asset management company Schroders (LSE:SDR). 

Despite its illustrious reputation and more than 200-year-old pedigree, Schroders has fallen into something of hard times.

The whole British financial sector suffered from the recent financial turmoil, but Schroders in particular was exposed as swimming without trunks on when the tide retreated.

It was somewhat overexposed in its pension positions; serious injury was only averted by an emergency intervention by the Bank of England to rescue pension funds. 

Consequently, Schroders shares have declined amid questions of the company’s risk management.

While in the doghouse, I for one am inclined to give the private equity giant a second chance.

Its profitability is not to be scoffed at; indeed, its operating margin and profitability are outperforming half of its industry peers, (20.72% and 19.4% respectively). It is also posting steady earnings and revenue growth to boot.

This suggests that when the dust settles, Schroders will return to its natural position as part of the FTSE 100 furniture, its share price climbing with it.

The wildcard

Hargreaves Lansdown (LSE:HL) is a financial juggernaut, selling funds and shares to retail investors while also managing assets.

Its fortunes have been in freefall, shedding some 45.2% of its shares’ value this year. This has been attributed to the shellacking its reputation took after the Woodford fund collapse. As legal storm clouds gathered, its share price tanked amid uncertainty about its trajectory.  

However, despite the rout, Hargreaves Lansdown has impressive profit margins and revenue that is not reflected by its share price. It is expected to grow by 11.3% over the next year, beating its three-year average by 4.6%. 

Its large cash reserves and low debt means that it will likely weather its legal travails. A big perk of me holding this share is its dividend payments, which are expected to grow to 5.6% next year, above the 3.7% FTSE 100 average. 

Additionally, this dividend has been paid consistently for 15 years. Overall then, this volatile share could be a great source of passive income and financial returns. 

I’ve found this acts as a good form of diversification in addition to my portfolio’s expected growth and value investments.

In the past, I focused on picking companies that offer the highest dividend, thinking this was the only way to build a good income portfolio. But I’ve decided to consider a new approach to income investing that looks at companies that have paid and grown their dividends for many years. These companies may only offer a yield of 1%-2%. However, the goal of this approach is for this dividend yield to gradually increase over the years.

Ashtead Group

The first company on my list is Ashtead Group (LSE: AHT), a construction equipment rental giant. It operates in three key regions — the US, Canada, and the UK — with over 1000 rental locations worldwide. The stock currently offers a dividend of 1.5%, but is forecast to reach 1.8% in 2023.

This current yield isn’t the most impressive and is below the index average of 3.8%. However, the fact that it’s has been paid consistently for 17 years — and has grown for 16 — interests me. 

Ashtead’s underlying fundamentals are also strong, with good profit margins, efficient earnings generation from capital, and reasonably low debt levels. But it’s important to note that despite the share price falling 25%+ this year, it’s still trading at a price-to-earnings (P/E) ratio of 16.4. This could suggest the company is overvalued even with its quality fundamentals.

Nonetheless, I think the opportunity to access such a consistent dividend yield is worth paying a premium for. So I’m keen to watch Ashtead in 2023 and will consider adding it to my portfolio.

RELX

The second company on my list is RELX (LSE: REL), an information and analytics business based in the UK. The company currently has a dividend yield of 2.2%, forecast to increase to 2.3% next year.

Relx has paid a dividend consistently for three decades, which is why I consider it a good income-generating share. However, the yield is lower than many examples of dividend-focused investments.

That being said, the stock is currently trading at a P/E ratio of over 26, making it quite expensive in the current market. The current yield of 2.2% is once again below the average FTSE 350 yield, so it may not justify its expensive price.

Yet RELX has very encouraging underlying fundamentals, and the consistent yield may be worth paying a premium for. Therefore I’ll monitor RELX next year to determine whether I should add the company to my portfolio.

But it isn’t all gloomy skies. The Office of National Statistics found that the UK economy grew by 0.2% in the second quarter of 2022, dispelling fears of a recession. 

I think quality FTSE 100 shares are still the best option for my growth portfolio. Looking at the charts, top UK shares have been rather elastic, rising strongly after recent crashes. While there is no guarantee that this will happen again, investing during mini crashes has historically been a great way to buy/add growth stocks. This is why I think it is the perfect time to invest in two FTSE 100 shares from my watchlist. 

Pandemic superstars 

Croda International (LSE:CRDA) and Ashtead Group (LSE:AHT) are two companies that I have been tracking closely since the pandemic. Between March 2020 and November 2021, these two FTSE 100 shares went up 152% and 342% respectively.

But since then, market corrections have put these top performers in bargain territory.

Industrial equipment rental firm Ashtead is down 34% since its all-time high and is currently trading at 4,000p, at a price-to-earnings (P/E) ratio of 14.6 times.

Across the financial year (FY) 2022, a period when most businesses struggled with inflation, Ashtead’s revenue jumped nearly 20% to £7.96bn, while net income grew of 36% to £1.25bn. In fact, Ashtead’s revenue has increased every year since 2018.

The company has a strong presence in the US, UK, and Canada, trading under the name Sunbelt Rentals. Its industry was recently boosted by US President Joe Biden’s public works stimulus bill. As a result, rental revenue from the US jumped 29% in the first quarter of FY2023. 

Similarly, chemical giant Croda has fallen 38% since its all-time high in November 2021. It is currently trading at 6,370p at a P/E ratio of 12.5 times. 

In FY2021 (ended 31 December 2021), Croda’s revenue jumped 35.9% to £1.89bn with net income growth of 59% to £320.8m. The company has also seen significant growth across the first half (H1) of 2022. Sales rose 21% compared to the same period in 2021. 

The British manufacturer is currently transitioning into a life sciences business, with a focus on cosmetics and pharmaceuticals. The board expects this to streamline the business with stronger margins and higher returns. 

Concerns and verdict

Both businesses have a global presence and the falling pound could affect profits moving forward. Given the volatility in global markets, this could cause these FTSE 100 shares to fall further. 

Also, a recession in the US could halt development projects, causing Ashtead’s sales to drop. Croda is still seeing proceeds from its Covid test kit chemicals, which is expected to slow down completely moving forward.

Despite these concerns, I think both businesses are well placed to navigate choppy waters. These businesses have demonstrated significant growth in recent times and have established strong markets and steady sales. Given the balance sheets, these FTSE 100 shares look dirt-cheap to me at current levels.

The age at which Britons can claim the State Pension is rising. At the same time, the rate at which the benefit is growing continues to lag the rate at which living and social costs soar. And it’s my opinion that things could get worse as the UK grapples with its high debts and rapidly ageing population.

£364,200!

I’ve built a portfolio packed with FTSE 100 shares. And I plan to continue investing in the index to help me retire in comfort.

In the past decade the index has delivered an average annual return of 7.38%, according to IG Group. If this rate of return continues (which isn’t guaranteed), an investor who buys £300 worth of FTSE index stocks each month for 30 years could have more than £364,200 to retire on.

A FTSE 100 stock I’ve bought

Investors can buy a FTSE 100 tracker fund to try and build wealth with London’s premier share index. As the name suggests, this investment vehicle tracks the performance of the index and pays out dividends.

But I prefer to buy individual stocks. This is because I think that, after doing some careful research, I have a chance to make a better return than the-almost 8% long-term Footsie average.

For example, Ashtead Group (LSE: AHT) is a FTSE 100 stock I invested in during 2019 and again in mid-2022. Here I’ll explain why I think it could help me to retire comfortably.

Expanding for growth

Ashtead rents out industrial equipment across the globe. Its main market is the US where it’s aggressively expanding to build market share. Its Sunbelt division commanded a 12% share as of April, making it the industry’s second-largest player.

The company’s hunger for acquisitions in fact allowed it to deliver the best returns across the entire FTSE 350 during the last decade. Refinitiv data shows that £1,000 invested here at the start of 2010 would have made an investor more than £35,600 at the end of 2019.

Pleasingly Ashtead remains committed to expanding its North American footprint too. The FTSE 100 firm spent a whopping $1.3bn on bolt-on acquisitions in the 12 months to April. Its formidable cash flows should give it ample room to continue investing heavily in acquisitions and organic growth too.

Developing a business through mergers and acquisitions can be dangerous. They can throw up unexpected integration problems and revenues can disappoint, to name a couple of pitfalls. But as an investor in Ashtead myself, I find the company’s excellent track record on this front extremely reassuring. I think it could make me a lot of money by the time I come to retire.

The future of grocery 

Ocado (LSE:OCDO) was a big pandemic winner. With people restricted indoors, this online grocer’s sales blew up. And while Ocado is still an online grocer, it has slowly transitioned into a tech company that sets up automated warehouses for other big chains. And its designs and workflow systems are backed by over 500 patents. 

The economic slowdown has caused many UK shares to fall from pandemic and post-pandemic highs. And Ocado shares, which rose 160% between February 2020 and February 2021, have fallen 69% since. In 2022 alone, the Ocado share price is down 45%. And there are some solid reasons behind this drop.

Ocado’s operations are very cash-intensive right now. The company has reinvested earnings and borrowed over £4bn since its initial listing. And just this week, it placed a further £575m of shares on the market, which added up to 9.7% of its share capital. Its huge R&D spending means the company has recorded pre-tax losses for two consecutive years.

But I’m still very bullish on this fast-growing UK share. It’s clear to me that automated warehousing is the future of e-commerce. And Ocado’s recent partnerships with grocery giants like Morrisons and Kroger back this up. The board expects steady revenue when warehouses that are still under construction start functioning. And its automation products saw a 301% jump in contracts last year. 

I believe its tech will become immensely valuable in the next five years. Ocado tops my UK shares to buy watchlist but the market is still volatile and I think the current bear run could present a better buying opportunity in the near future.

FTSE 100 darling

Equipment rental company Ashtead Group (LSE:AHT) was a big winner in 2020-21. Its shares jumped over 310% between March 2020 and December 2021. However, so far in 2022 they’re down 45% at 3,400p with a price-to-earnings ratio of 14.8 times. And I think the company is a bargain growth option at this price. 

It’s already the second-largest equipment rental company in North America and the largest in the UK. And being a construction service provider, Ashtead avoids the pitfalls of construction like fluctuating commodity prices and environmental factors delaying deliveries.

The company will have to deal with growing overhead and repair costs and its sizeable £5.8bn net debt. This could eat into future revenue given its high acquisition spending right now. But the business is a strong cash generator, bringing in £1.1bn in 2022. 

This business is on my UK shares buy list because of its steady growth strategy and huge market share in cash-rich regions. Ashtead addresses a very specific problem in the construction industry and I’m bullish on its business model. I’d be tempted to invest in the company once the larger global economic climate shows strong signs of recovery. 

Ashtead

Ashtead (LSE: AHT) is a British industrial equipment rental company. It has networks in the UK, US, and Canada. It also trades under the name of Sunbelt Rentals. The industrial firm is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. The earnings preview indicates a positive trend in both its top and bottom lines as it recovers from its pandemic woes.

• Market cap: £17.5bn
• Price-to-earnings (P/E) ratio: 18
• Dividend yield: 1.1%

• Earnings per share estimate (FY 2022): £2.47
• Earnings per share (FY 2021): £1.56
• Total revenue estimate (FY 2022): £6.47bn
• Total revenue (FY 2021): £5.0bn

Halma

Halma (LSE: HLMA) is a British global group consisting of safety equipment companies. These firms make products for hazard detection and life protection. The FTSE 100 group is expected to report earnings for its financial year 2022 on Thursday, 16 June 2022. The earnings preview indicates slight growth from the previous year.

• Market cap: £8.0bn
• P/E ratio: 30
• Dividend yield: 0.9%

• Earnings per share estimate (FY 2022): 63.1p
• Earnings per share (FY 2021): 58.7p
• Total revenue estimate (FY 2022): £1.5bn
• Total revenue (FY 2021): £1.3bn

FirstGroup

FirstGroup (LSE: SSE) is a British multi-national transport group. The company operates transport services in the UK. The transport company is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. Earnings preview indicates a drop in revenue and a return to unprofitability.

• Market cap: £1.0bn
• P/E ratio: 2
• Dividend yield: –

• Earnings per share estimate (FY 2022): -0.4p
• Earnings per share (FY 2021): 2.4p
• Total revenue estimate (FY 2022): £4.52bn
• Total revenue (FY 2021): £6.8bn

Ashtead Group

FTSE 100 equipment hire firm Ashtead (LSE: AHT) releases Q4/full-year numbers on 14 June and I, for one, will be paying attention to them. After all, this is a share I’ve been interested in acquiring for some time now.

The valuation is certainly a lot more attractive than it once was. When I last checked in December, Ashtead was trading at 25 times forecast earnings on the back of record rental revenues. In a year, the stock has declined 25%. This leaves the company on a P/E of just 13 — not at all bad considering the consistently decent margins in this line of work.

Despite current headwinds, I think the outlook is encouraging too. Ashtead should benefit from Joe Biden’s infrastructure bill for a start. Nonetheless, taking a stake now still requires courage given the possible impact of a recession on the construction industry.

If I did buy before June, it would be a starting position only.

Tesco

Tesco (LSE: TSCO) is arguably a far more defensive option. Put simply, everyone needs to eat regardless of how the economy is performing.

Unfortunately, this attribute hasn’t been enough to shield Tesco’s share price from falling. The UK’s biggest supermarket by market share has lost 11% of its value in 2022. That’s not horrific and it’s up 15% over 12 months. However, a bog-standard FTSE 100 tracker would have given me a better return.

Whether a trading update on 17 June can turn things around is questionable. We know that grocery prices have been soaring, causing consumers to reconsider what they eat and where they shop. As such, I can’t see competition in this sector becoming any less fierce (think German discounters).

At 12 times forecast earnings, I’d say some of this is already factored in. The biggest draw here, however, is the 4.1% dividend yield. So, if I were investing purely for income today, Tesco would definitely be on my shortlist.

For capital growth, I’d look elsewhere.

Associated British Foods

Associated British Foods (LSE: ABF) completes my trio of cheap FTSE 100 shares down to report next month. Like most retailers, the owner of Primark has found things tough of late. The shares are down 31% in a year.

Despite this, I see a lot to like. If any clothing retailer is likely to get through a recession relatively unscathed, it’s one at a low price point. On top of this, ABF benefits from a diversified business model that also includes ingredients, sugar, agriculture and grocery.

Then there’s the valuation. A P/E of 13 looks good value. The shares also come with a secure-looking 2.9% dividend yield.

On the flip side, I doubt a trading update on 20 June will be brilliant. The company has already signalled the need to “implement selective price increases” at Primark. Raw materials costs will also be biting.

Again, I’d be inclined to drip feed my money in here rather than going ‘all in’.

Ashtead share price fall in recent months

As a quick reminder, Ashtead is a multinational construction equipment rental firm with a strong presence in the UK, US, and Canada. It has a customer base of over 800,000 throughout its several key territories which also includes a lot of Europe.

So what’s been happening with Ashtead shares? Well, as I write, the shares are trading for 3,582p. At this time last year, the shares were trading for 4,801p, which is a 25% decrease over a 12-month period.

The stock market correction in March caused the Ashtead share price to fall close to 35%, from 5,484p to current levels.

The biggest risk

Ashtead’s progress and growth is intrinsically linked to the economic outlook. This is because construction and development goes hand in hand with general economic performance.

Current soaring inflation, coupled with the rising cost of raw materials and the cost of living crisis, has placed economies around the world under pressure. Building and construction could be affected.

If Ashtead’s products weren’t being rented and utilised and instead sat unused in their yards, this would affect performance. In turn, the Ashtead share price and any returns I hope to make could be affected too.

The bull case and my verdict

So now to the positives. Ashtead has an excellent record of consistent historic performance. I do understand that past performance is not a guarantee of the future, however. Looking back, Ashtead increased revenue and gross profit between 2018 and 2020. Figures for 2021 dropped slightly but I believe this was linked to the effects of the pandemic.

Coming up to date, Ashtead reported a Q3 trading update in March for the three months ended 31 January 2022. Revenue increased by 23% compared to the same period last year. The same could be said for operating profit and earnings per share, which increased by 29% and 38% respectively. I’m looking forward to full-year results, which are due after June.

At current levels, the Ashtead share price looks decent value for money on a price-to-earnings ratio of 16, which is very close to the FTSE 100 average of 15. As a bonus, the shares could boost my passive income stream too through dividend payments. Ashtead shares have a current yield of 1.2%. Dividends are never guaranteed and can be cancelled, of course.

I am also a big fan of Ashtead’s business model. In construction, renting is seen as a much cheaper alternative than buying equipment. With its large presence and profile in several key economies, including the US, this should help performance growth and returns to continue.

I’d add Ashtead shares to my holdings currently. It has a good track record of performance historically and recently and would boost my passive income stream. The recent stock market correction has led to the Ashtead share price looking like good value for money right now too.

FTSE 100 global champion

I am looking to buy stocks for my portfolio that have a global competitive advantage. This is an edge that competitors around the world may not be able to replicate.

There are many examples of competitive advantages. Size and scale are two of the most important. A unique product or service could be another sign of a strong competitive advantage. 

Building materials group CRH (LSE: CRH) exhibits several of these qualities. Manufacturing and distributing building products is one of those industries which investors often overlook. However, it fulfils an essential role in the global economy. Starting up a quarry or facility to convert raw materials into building products is not easy. It requires a lot of money and experience to develop these facilities.

It also requires permission from local authorities, which can be hard to maintain. Local authorities need to trust the company is responsible enough to develop a facility that will not harm the environment or the local population.

An edge in the market 

This is where CRH has an edge. The FTSE 100 company is one of the largest building materials companies in the world. It has the financial resources and the connections to develop these facilities effectively without getting bogged down in excessive regulation or having to ask shareholders for additional cash.

The company’s size means local authorities can rest safe in the knowledge that there will be room to achieve some sort of compensation if something goes wrong. 

Still, while the corporation does have an edge in the market, it is not immune to the risks involved. One of the most significant risks the company could have to deal with is environmental concerns. The construction industry is one of the biggest polluters in the world. Dealing with the costs of this pollution could significantly impact the organisation’s profit and profit margins.

Nevertheless, building activity around the world is booming, and the company is capitalising on this growth. According to its latest results release, sales increased 12% in 2021 and earnings before interest, tax, depreciation and amortisation (EBITDA) increased 16%.

Bolt-on acquisitions 

To help complement growth, the company is looking for additional acquisitions. Last year, it invested $1.5bn on 20 bolt-on acquisitions to help expand its presence in additional markets. The group is planning further acquisitions and capital spending to increase its footprint in certain markets. 

A key area of growth for the company is America. Here, management is excited by the recently announced $1.2bn infrastructure package, which could have a significant impact on the demand for construction materials across the region.

The number of housing starts has also recently hit a multi-year high, further reinforcing the company’s opinion that the demand for building materials will increase substantially across the US in 2022 and beyond. 

Based on these qualities and the outlook for the company, I think this is one of the best shares to buy right now. I would not hesitate to add the FTSE 100 stock to my portfolio with an investment of £3,000. 

FTSE 100 

Alongside CRH, I would also buy its blue-chip peer Ashtead (LSE: AHT). I think this is a really interesting company. It owns capital equipment, which it rents out to organisations like builders and other industrial companies.

This business model is incredibly profitable. It requires a lot of capital investment upfront, but once an enterprise has acquired the equipment, it can rent it out repeatedly and earn a high return on its initial investment.

Indeed, the company has reported a return on invested capital in excess of 50% in the past. This generates plenty of additional funding for the business to reinvest back into new growth initiatives and buy smaller peers.

During the six months to the end of October 2021, the company invested $1.2bn in the business and spent a further $428m on acquisitions. It is also benefiting from the construction industry boom taking place in multiple markets around the world.

Global growth

While the company’s biggest market is North America, it also has a strong presence in Europe. Rental revenue increased 18% year-on-year in the six months to the end of October. Operating profit increased 22% and adjusted earnings rose 29%. 

With profits surging, I think the group could report faster growth in the years ahead as it reinvests its capital back into growth initiatives and targets new markets.

That said, this company is very sensitive to the economic environment. One of the biggest challenges it will have to overcome is the uncertain economic outlook.

If spending falls in the construction industry, demand for its products and services could also decline. This would also certainly have a significant impact on profitability as a company is not making any money if its equipment is sitting its yards unused. 

Buy-and-forget holding 

Even after taking this potential challenge into account, I think the outlook for the business is incredibly exciting. As such, I would not hesitate to buy the stock for my portfolio today.

As the FTSE 100 company capitalises on the improving economic backdrop, I think it will be able to grow and invest more, further accelerating its growth rate over the next five to 10 years.

Even though the current geopolitical and economic environment could prove to be a significant headwind for the business, as a buy-and-hold investment for the next decade, I think this is one of the best shares to buy now with £3k.

FTSE 100 retailer

The first blue-chip business on my list is JD Sports (LSE: JD). This retailer occupies a strong niche in the UK sports footwear market. It is also expanding rapidly around the world. It is one of the few UK retailers that has been able to take market share in the US, a traditionally difficult market for these businesses. 

Of course, there is still a risk that the firm could hit a wall. It could end up overexpanding, and this might lead to losses for investors. 

Management has outlined its plans to expand further in the years ahead by pushing into new markets and opening more stores. While the stock is a bit on the pricey side, I think it is worth paying a premium to buy into JD’s growth over the next few years. These are the reasons I would buy the business for my portfolio. 

International expansion

I would also acquire FTSE 100 business Ashtead (LSE: AHT). The equipment rental sector can be fantastic. The initial capital costs can be demanding, but after the equipment is acquired, a company can lease it out again and again, earning a high return on investment.

Ashtead has been reinvesting its profits back into growth over the past decade, and it now has a strong footprint in both the UK and US.

Unfortunately, the nature of this market means the firm is highly exposed to the economic environment. A sudden downturn in construction activity could significantly impact the business and its growth potential.

Management may have to re-evaluate growth plans in this scenario, and the company’s expansion may not live up to my expectations. 

Despite this risk, I believe there will always be demand for equipment rental services in the UK and US. That is why I would acquire the stock right now. 

Buy, build, sell

The final company I believe has the potential to grow my wealth significantly over the next couple of years is Melrose Industries (LSE: MRO). The engineering group has a strong track record of buying, improving and selling engineering enterprises. Its most recent acquisition was engineering conglomerate GKN. 

This strategy has produced strong returns in the past, although there is no guarantee this will continue. There will always be the chance Melrose could find itself over its head and unable to manage an acquisition. In this scenario, the FTSE 100 company may have to ask shareholders for additional cash. 

Still, with the outlook for the economy improving, I believe the engineering group has scope to grow substantially over the next couple of years.