1. Consistently pays a dividend to its shareholders
2. Annually increases the size of the payout

There is no requirement for high yields. I assume the market is forward-looking. Investors might have driven a stock price down because they see trouble is on the horizon for the company. But that will also drive the trailing dividend yield higher. Thus, I could buy a stock just for its high yield and walk straight into a dividend cut.

The yields on my three FTSE 100 dividend aristocrat picks might seem uninspiring. But bear in mind that I am looking for companies to buy and hold in my Stocks and Shares ISA for years. I am looking for a great track record to give me confidence that dividends will be consistent and grow over time.

FTSE 100 dividend aristocrats

The first of my picks is the industrial engineering company Spirax-Sarco (LSE: SPX). It has increased its dividend per share (DPS) every year over the last decade. Over the last five fiscal years, payouts to Spirax shareholders have increased by 12% per year.

Spirax’s revenues and earnings have grown solidly over the last decade, driving dividends steadily higher. The company’s dividend payout ratio (DPR) — DPS divided by earnings per share (EPS) — has remained fairly stable at around 45% over the last half-decade. That speaks to a consistent dividend policy designed to pay out what the company can afford. This is all comforting. It suggests that if the company continues to perform as it has, I should see bigger cash flows into my ISA over time if I buy its shares now.

Diageo is another FTSE 100 dividend aristocrat with solid revenue and earnings growth and a consistently increasing dividend over the last decade. Aside from a very high reading in 2020, the DPR has remained at around 60% over the last five years. The company, which produces alcoholic beverages known the world over, like Johnnie Walker and Smirnoff, has increased its DPS by 4% annually on average over the last five years.

Finally, I like the look of Relx. This provider of research journals, databases, business intelligence, analytics services, and exhibitions has consistently paid a dividend to its shareholders for decades and increased it yearly over the last 10 years. Once again, I see solid revenue and earnings growth and a consistent DPR of about 60%.

Attractive dividend yields

A high dividend yield might not necessarily be attractive. Also, a low yield might not mean an investor like myself should turn away in horror. None of these three stocks has eyewatering yields: Spirax’s yield is 1.3% on a trailing 12-month basis, Relx’s is 2.3%, and Diageo comes in at 2.1%.

But let’s look at DPS instead. Spirax shareholders received a dividend of 136p per share in 2021. If Spirax continues to grow its payments at 12% a year, then after 10 years, the DPS will be 350p, and after 20, 1,088p, which would be a yield of 10% on a 10,620p per share investment in the stock made today. But, as always, there are no guarantees in investing, and I need to be confident that the future of these companies will look like the past before diving in.

I have identified two such FTSE 100 shares that are currently in the bottom half of the index when ranked by the 30-day average trading volume. And I think these companies look like they are ready to explode when the next bull run hits. 

Overlooked superstars

Spirax Sarco (LSE:SPX) and Croda International (LSE:CRDA) were big pandemic winners. Between March 2020 and December 2021, these two shares gained over 110%. In fact, Croda International was a top FTSE 100 performer across 2021, jumping 57% in a year. 

But since this bull run, both shares have fallen significantly. Croda bottomed out at 4,490p in June 2022 after hitting all-time highs in December 2021. Spirax-Sarco too fell over 46% during the same period, bottoming out at 9,130p. 

This caused investor interest to dampen. Thirty-day trading volume for Spirax-Sarco and Croda is currently at 168,000 and 434,000, respectively. For comparison, Lloyds shares recorded 205.33m trades during the same period. 

But I think the tides are changing. Since the June low, both companies have rebounded by over 22%, showing me that if the market is healthy, these shares could grow very fast. 

Finances

Croda International is a speciality chemical company operating in Britain for over a century. It focuses on chemicals used in beauty and personal care products. The firm also has a huge agriculture wing that focuses on chemicals required for crop growth. 

The recently released first-half (H1) 2022 results showed that sales jumped by 21% compared to H1 2021. Similarly, profit before tax went up 26% to £636.5m including proceeds from recent sales. 

The company recently redoubled its growth efforts in the fragrance industry, which is witnessing strong growth in emerging markets. It has a projected valuation of $58.8bn by 2022 which would bring compounded annual growth to 5.6%. 

The second company on my list, Spirax-Sarco, is an engineering firm with a focus on steam management systems. This share gained a lot during the recent green energy push across Europe. And this has gathered more steam this year, making the market ripe for Spirax-Sarco, which creates efficient energy systems for industries. 

In 2021, the company recorded a revenue of £1.3bn, up 17% from 2020. Total profits were £340.3m with an impressive margin of 25.3%. A strong positive is that insiders purchased Spirax shares worth over £462,000 last year and sold nothing.

While these are strong signs for both companies, I think there are some concerns to address. Both boards have noted fluctuating commodity prices as a major cause of concern for the coming months. Also, Croda has been spending a significant amount on R&D, which could backfire if there is a market crash. 

And it is unlikely that these companies will recreate the runs they had in 2020. But given the strong fundamentals and large market share, I think I would make an investment in both companies in 2022 provided the rebound continues. 

African telecommunications

Airtel Africa (LSE:AAF) is a telecommunications and mobile money company with 118.2m customers in 14 African countries. The company aims to connect a continent that struggles with large distances between communities and poor infrastructure.

The FTSE 100 company saw a 14.2% increase in revenue in 2021 with the three key services of voice, data, and mobile money all growing. It was noted in its recent annual report that, “Mobile and digital penetration is low and populations are young and growing fast“. This shows there remains considerable growth opportunity within the sector. The company is the market leader in the majority of the countries it operates in, which puts it in a great place to reap the rewards from this growth.

Some challenges lay ahead for this FTSE 100 company. Due to the scale of Africa, there are challenges in connecting remaining isolated areas to mobile and data networks. The costs of adding an extra person to the network will continue to rise, which will put a strain on profits.

The shares currently trade with a price-to-earnings ratio of only 9.9, which is better than the majority of FTSE 100 shares. I’m excited by the growth opportunities that lie ahead for the company, which is why I added this company to my portfolio.

A FTSE 100 engineer

Spirax-Sarco (LSE:SPX) is a British engineering giant with a global presence in several niche industries. The company manufactures steam systems, peristaltic pumps, and electric heating units. This isn’t going to get anyone’s heart racing. However, I don’t mind that. I think that ‘boring’ shares are often overlooked. The shares are down 33% in 2022.

Spirax-Sarco coped well with the pandemic with revenue only falling 4% from £1.24bn in 2019 to £1.19bn in 2020. Revenue reached £1.34bn in 2021 with the company reporting a record operating profit of £340.3m. Alongside this, 50% of revenue comes from equipment maintenance. As industrial customers can’t just decide not to maintain their equipment, this has given Spirax-Sarco a resilient income stream.

However, there are a few upcoming challenges. Lockdowns in China have left a Shanghai factory running at lower capacity, which could leave customers with longer order waits. Alongside this, rising inflation is causing its own challenges. Demand for new machinery may drop as companies try to cut down on costs.

The shares are currently trading with a price-to-earnings ratio of 34 and a dividend yield of 1.27%. I wouldn’t consider this incredible value compared to some other FTSE 100 alternatives.

Overall, I think the positives still outweigh the negatives. The company has shown incredible resilience over the last few years and I see this set to continue. That is why I added Spirax-Sarco shares to my portfolio.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

BAE Systems 

What it does: BAE Systems is one of the world’s leading defence companies and a major supplier to UK and US armed forces.  

By Royston Wild. Defence giant BAE Systems (LSE: BA) is the best-performing FTSE 100 share over the past six months at the time of writing. 

In fact, it’s risen around 40% in value in the year to date. And more recently its share price has remained rock-solid whilst other UK shares have toiled in this new bear market. 

I think the Footsie firm remains an ideal growth stock for me to buy today. Soaring inflation and growing recessionary risks pose a threat to more cyclical stocks. Defence stocks like BAE Systems, on the other hand, can expect trading conditions to remain robust in the near term, meaning investor selling should be kept to a minimum. 

Government defence spending is something that remains broadly resistant to wider economic conditions. War is a constant of history and countries have to be prepared to defend themselves at a moment’s notice. 

This explains why City analysts think BAE Systems’ annual earnings will rise 7% in both 2022 and 2023. This is despite the threat that supply chain problems pose to its operations. 

Royston Wild does not own shares in BAE Systems. 

Experian

What it does: Experian provides credit data to lenders to allow them to assess the creditworthiness of potential borrowers.

By Stephen Wright. I’m keeping things simple with my top UK growth share for July. 

In my view, a good growth stock is one that grows. Specifically, it grows its earnings and then uses those earnings to generate more earnings. This is exactly what Experian (LSE:EXPN) does. 

The company’s strong growth is protected by a high barrier to entry. Experian has a huge database of credit information that it bases its credit scores on, and this would be difficult for a smaller competitor to emulate.

Furthermore, most mortgages require a tri-merge report. Experian’s credit report is part of this, which makes me think that the business will continue to do well going forward.

I’m impressed by the company’s growth and I think that shares trade at a reasonable price at the moment. As such, I’m looking at adding to my investment in Experian stock in July.

Stephen Wright owns shares in Experian.

Coats

What it does: Coats is the world’s leading industrial thread manufacturer. It operates in sectors including fashion, energy and telecoms.

By Roland Head. Thread maker Coats (LSE: COA) is a business that many investors have never heard of, even though we probably all use its products.

This British business has been trading for more than 250 years and operates in 50 countries, with annual sales over $1.5bn.

Analysts expect Coats’ earnings to rise by 13% this year and by 17% in 2022. Despite this positive outlook, the shares currently trade on just 10 times forecast earnings. I reckon that’s too cheap for a business which generated a 21% return on equity last year.

I admit that Coats has disappointed the market before. Demand for some of the company’s products could also fall in a recession.

However, I think the diversity of Coats’ customers should provide protection against localised problems. I’m also impressed by the changes being put in place by CEO Rajiv Sharma. I expect strong growth over the next few years.

Roland Head owns shares in Coats.

JD Sports Fashion

What it does: JD Sports Fashion is a retailer of athletic footwear and athleisure clothing that operates globally.

By Edward Sheldon, CFA. Shares in JD Sports Fashion (LSE: JD) have taken a huge hit in 2022, and I think this has presented me with a great opportunity to buy the growth stock in July.

JD’s full-year FY2022 results, posted in June, were very encouraging to my mind. For the 52 weeks ended 29 January 2022, revenue came in at £8.56bn, up 39% year on year. Meanwhile, adjusted earnings per share (EPS) jumped to 12.8p versus 6.4p a year earlier.

Looking ahead, I’m not expecting growth to continue at this pace. However, in the long run, I expect demand for casual attire to boost revenues and profits significantly.

One risk to consider here is a pullback in consumer spending due to the cost-of-living crisis. This could hit sales. However, with the stock now trading on a forward-looking P/E ratio of under 10, I think a lot of this risk is priced into the stock already.

Edward Sheldon has no position in JD Sports.

Future

What it does: Future is a massive media conglomerate serving digital media on a variety of topics to a global audience of over 300 million people.

By  Zaven Boyrazian. Investing in a media publishing house may sound old fashioned. But it’s proven to be a lucrative move for shareholders of Future (LSE:FUTR). The company is one of the largest media groups in the world, with over 250 websites under its umbrella, including TechRadar, Country Life, and its recently acquired Who What Wear. And over the last five years, the stock is up 700%!

Revenue is primarily generated through advertising and subscriptions. But with more service platforms like GoCompare emerging in its brand portfolio, the company has begun earning considerable income through affiliate fees.

Despite delivering high-double digit growth so far this year, shares have since taken quite a tumble thanks to investor sentiment waning. There are undoubtedly risks surrounding management’s primarily acquisition-driven approach. However, with an excellent track record, I can’t help but see this slump as a buying opportunity for my investment portfolio.

Zaven Boyrazian does not own shares in Future.

Molten Ventures

What it does: Molten Ventures is a UK-based tech-focused venture capital firm with a track record of backing now-listed businesses from very early stages.

By Andrew Woods. Molten Ventures (LSE:GROW) performed well during the pandemic. For the year ended March, between 2021 and 2022, pre-tax profit grew from £267m to £325m. The value of the firm’s gross portfolio also rose from £984m to £1.53bn over the same period.

The company’s most exciting performance, however, is in its earnings-per-share (EPS) growth. Between 2018 and 2022, EPS rose from 89p per share to 200p. By my calculation, this means the firm had a compound annual EPS growth rate of 17.6%. While past performance is not necessarily indicative of future performance, this growth rate is extremely attractive.

The company’s most recent net asset value (NAV) was 937p per share in March. While this is now a few months old, it’s clear that the current share price of 460p is a significant discount. Despite this, the broader economic environment has hit tech stocks particularly hard. There may be a further slide as inflation increases and interest rates continue to rise.

Andrew Woods does not own shares in Molten Ventures.

Renalytix

What it does: Renalytix develops and sells medical devices that can diagnose risk indicators for kidney disease.

By Christopher Ruane. I own shares in Renalytix (LSE:RENX) and so far it has been an absolute dog! The shares have lost 85% of their value in the past year alone. Definitely there are still risks here, such as the substantial costs required to sell the company’s system into more healthcare providers.

But I also see a potentially fantastic opportunity if things go well. There is clinical evidence that the technology can help improve diagnostic outcomes. A presentation this month revealed its positive impact at a leading New York healthcare provider.

Kidney disease is the direct cause of over a million deaths globally each year. If Renalytix can sell its innovative, proven system into more healthcare groups, the scalability of its business model could generate higher revenues without adding costs at the same speed. In the long term I remain optimistic about the outlook, but recognise the risks involved.

Christopher Ruane owns shares in Renalytix.

Spirax-Sarco Engineering

What it does: Sprirax-Sarco Engineering is a UK-based industrial engineering company focused on thermal energy management

By Paul Summers: Cheltenham-based Sprirax-Sarco Engineering (LSE: SPX) is a high-quality company I’ve been monitoring for a while now. A world leader at what it does, the FTSE 100 member has long generated high margins and returns on the capital it invests. It’s these hallmarks that have been found to reward growth investors like me handsomely over time.

The only problem with all this is that the stock has always looked extremely expensive. Until now, that is. A 40% slide in the share price in 2022 leaves Spirax trading at almost 28 times earnings. Granted, that’s still not cheap. However, the idea of beginning to build a position here for the long term now looks far more palatable. 

There’s always a chance things could get worse before they get better if we get a recession. However, high customer loyalty should mean the pain should be temporary.

Paul Summers does not own shares in Spirax-Sarco Engineering

Carnival

What it does: Carnival operates a list of renowned cruise line brands. It sells deals and cruise packages to popular destinations.

By John Choong. Carnival (LSE:CCL) was close to hitting a five-year low in June, but positive guidance provided in its most recent trading update sent its share price rocketing by more than 10%. While this is minuscule on the wider scale of things, there are reasons to be optimistic about a potential recovery.

Despite the firm missing analysts’ estimates on earnings per share, revenue and room occupancy rate, revenue grew by almost 50%. More importantly, I was impressed with the company’s future bookings. The figure came in nearly double of Q1 2022, marking its best figure since the beginning of the pandemic. This is something to cheer for, because future bookings bring in the much-needed cash Carnival requires to return to profitability.

Provided that travel tailwinds continue to persist, Carnival could pull off a monumental recovery, pay off its debt gradually, and even achieve positive free cash flow soon. As such, grabbing shares at the current price could be a steal for years to come.

John Choong has no position in Carnival

Here, I am going to discuss one of these lesser-known Footsie stocks. This company has a fantastic track record when it comes to growth and dividends and has generated enormous returns for shareholders over the long run. Could it be the FTSE 100’s best-kept secret?

A FTSE 100 legend

Spirax-Sarco Engineering (LSE: SPX) is a British company that specialises in steam systems, electric thermal systems, and pumps and fluid path equipment. Its solutions, which are used worldwide, enable businesses to manufacture everything from food and beverages to medicines, paper, and car tyres. Established in 1888, it listed on the London Stock Exchange in 1959 and joined the FTSE 100 index in 2018. At present, it has a market-cap of about £9.2bn.

A world-class business

An analysis of Spirax-Sarco Engineering’s financials reveals that it’s a very impressive business.

For starters, the company has an excellent track record when it comes to top-line growth. Over the last five years, revenue has climbed from £757m to £1345m, which represents annualised growth of CAGR 12.2%. There are not many companies in the FTSE 100 growing at that rate. In the group’s recent 2021 results, it said that it was expecting 2022 to be another strong year of growth.

Secondly, it’s a very profitable business. Last year, gross margin came in at 77%, which is excellent. Companies with high gross margins tend to be protected from inflation. Meanwhile, return on capital employed (ROCE) in 2021 was 22%, which is also very good. Businesses that generate a high ROCE consistently tend to deliver big returns for investors over the long run.

Third, SPX is a dividend star. The yield here isn’t high, at around 1.2%. However, the company has increased its payout every single year for the last 54 years (at an average rate of 11%). That’s an outstanding achievement. That makes the company one of the most reliable dividend payers in the FTSE 100.

Investor demand

Now the downside. This FTSE 100 stock is quite expensive, even after a recent pullback. The valuation reflects the fact that SPX is a high-quality business.

This year, analysts expect Spirax-Sarco Engineering to generate earnings per share of £3.51. This means that, at the current share price, the forward-looking P/E ratio is about 36. I don’t see that valuation as outrageous. However, it probably doesn’t leave a margin of safety. If growth was to stall, I’d expect the stock to underperform.

Would I buy this FTSE 100 stock today?

Given the valuation, I won’t be buying SPX for my own portfolio today. Right now, the stock is just a bit too expensive for me.

However, I am certainly going to keep this FTSE 100 dividend star on my watchlist. If the P/E ratio was to come down to around 25, I would certainly be interested in buying the stock.

Full steam ahead

Spirax-Sarco is an engineering business that specialises in steam management systems and tech, as well as other related pumps and fluid path tech. The majority of its business comes from commercial customers.

As I write, Spirax shares are trading for 12,445p, making them — as I said — the most highly-priced shares on the FTSE 100 index right now. The second closest shares are trading for just over 10,000p.

Spirax shares were actually trading for 16,000p at the start of the year and have dropped over 20% to current levels in approximately four months. This time last year the shares were trading for 12,020p which means the shares are up 3% over a 12-month period.

For and against investing

FOR: On the plus side, Spirax has increased its yearly dividend for 54 years in a row! Not many firms can claim such a remarkable feat. Excellent performance usually drives such a lengthy year-on-year dividend increase. I do understand that past performance is not a guarantee of the future, of course. Yet the FTSE 100 incumbent’s latest FY results, posted last month, made for positive reading and pushed the shares upwards. Revenue and profit increased by 13% and 29% respectively. The dividend per share increased by 15%.

AGAINST: And the negatives? Excellent performance can help boost dividend payments but with such a high share price and low dividend yield of just over 1%, Spirax could be a bit of a trap right now. The shares have a price-to-earnings ratio of 40, which I consider high and is a risk. I think I could find other FTSE 100 stocks with a lower share price and a higher dividend yield.

FOR: Spirax-Sarco’s rise to prominence as well as positive performance and dividend record have emerged due to its market position. Its solutions offer many of its commercial customers fast resolutions to business-critical problems. Due to this, it is able to charge a premium for its services. Additionally, its flexibility in creating bespoke tailored solutions allows it to have deep seated and lucrative relationships with its customers. These factors have boosted performance and driven the shares upwards in recent years.

AGAINST: Many FTSE 100 stocks have suffered in recent months due to macroeconomic issues such as rising costs, as well as supply chain issues. These issues could affect Spirax-Sarco too. They could affect the bottom line, performance, share price and shareholder returns.

A FTSE 100 stock to buy or avoid?

Would I buy Spirax-Sarco shares for my holdings right now? The short answer is no. Its high valuation as well as current macroeconomic uncertainty lead me to look for better value stocks with better dividend yields for my holdings.

I will keep a keen eye on developments at Spirax and if we see another stock market crash or even a market correction, I’d be tempted to snap up the shares for my holdings should the share price come down.

Engineering specialist

The company in question is engineering specialist Spirax-Sarco (LSE: SPX). The company is not a household name, but that is partly because its customer base is commercial.

There is a lot to like about the business model at Spirax-Sarco, in my view. Many of its products are needed for time-critical situations where quality matters, for example replacing a broken part that has caused a production line to stop. So customers are willing to pay premium prices. That can help sustain high profit margins for the company. Last year its post-tax profit margin was 17%.

The company benefits from deep relationships with many customers due to its ability to tailor bespoke solutions for specific needs. That helps build customer loyalty, which in turn should help boost future revenues.

One risk, though, is any cutback in spending by customers if there is a recession. Although some of Spirax-Sarco’s output is essential whatever the economic situation, not all of it is. I think a bad recession could hurt both revenues and profits.

UK dividend share with long track record

The company announced its annual results yesterday, and said it plans to raise its annual dividend by 15%. That is the fourth time in five years that the company has increased its payout by double-digits in percentage terms.

That level of dividend growth would catch my attention at any company. But what is incredible is that Spirax-Sarco has raised its dividend every year on the trot for more than half a century. That is an incredible record and very unusual among UK shares. It is particularly noteworthy given that the recent increases are substantial ones and not just tokenistic efforts to maintain this record.

With the latest dividend covered two-and-a-half times by earnings, the dividend increase looks well supported to me. As with any company, there is no guarantee that the company will keep increasing (or even paying) its dividends in future. However, I would be surprised if management did not at least try to keep the increases coming.

Spirax-Sarco dividend yield

So far, so good – this UK dividend share could easily slot right into my income portfolio if I could buy it at an attractive price.

But other investors also like the income story here. So the shares are not cheap. The Spirax-Sarco share price means that its current dividend yield is only 1.2%, which does not excite me much. The shares have fallen 15% since November but are basically flat over the past year, growing less than 1%. With a price-to-earnings ratio of 35 they look cheaper than before. But they are still too pricey for my tastes, even for such a high-quality company. So for now, I will not be adding Spirax-Sarco to my portfolio.

Spirax-Sarco share price rises on results

The company released its results earlier today, which have clearly pleased investors. Its revenue is up some 13% in 2021 and its earnings per share are up by 35%. Its dividends have also risen by 15%. 

Its net debt to EBITDA, which is short for earnings before interest, taxes, depreciation, and amortisation, is down to 0.35 times. By comparison, the number was at 0.7 times last year at this point. Even last year’s number is not worrisome, but the fact that it has halved from even there is good news indeed. 

The company is also largely positive about its prospects for the current year. It expects organic sales to grow at rates “well above” those for global industrial production, whose increase has ranged between 4% and 4.4% in 2022 so far. It also expects the adjusted operating profit margin to remain “comfortably above pre-pandemic levels” in 2022. 

High valuations for the FTSE 100 stock

It is not all roses here, though. The big stumbling block I face when considering investing in the Spirax-Sarco Engineering stock is its valuation. It has a price-to-earnings (P/E) ratio of 40 times right now, and it does not help that it is the most highly priced FTSE 100 stock even in absolute terms. 

I could also look at its price-to-sales (P/S), considering that it is a growing company, but even that is higher than that for its global peers at around 6.5 times. In other words, whichever way I look at it, the stock looks pricey to me. 

Its high valuation could be justified if it were a classic defensive like healthcare or utility stocks. But that is not the case. It is linked to global industrial production, which by its very nature is a cyclical economic activity. 

What I’d do

Yet, I cannot help but notice that over the past five years, the Spirax-Sarco share price has almost tripled. And this is after it has seen a huge correction since late last year. If this correction had not happened, its share price would have quadrupled in five years. 

That it has seen fast growth is also evident in the fact that when I first wrote about the stock in 2019, it was part of the FTSE 250. Now it is the most expensive FTSE 100 stock. Clearly, it is doing something right. 

As things stand, however, I would put it on my investing watchlist right now, when there is a fair bit of economic uncertainty around. But I would like to dig deeper into this stock to figure out if there is anything I am missing here. It might just change my mind!

This does not mean that I have a pessimistic outlook on the stock markets. Only that I like to be prepared for a seemingly challenging situation, if it were to arrive. As it happens, some of the stocks I like best right now are also among the priciest ones around.

Spirax-Sarco Engineering is the priciest FTSE 100 stock

The first of these is the FTSE 100 engineering giant Spirax-Sarco Engineering (LSE: SPX). It is the most pricey stock among the index’s constituents. As I write, its share price is at a huge £162.6. It also has an enviable share price trajectory over time. In the past year, it has risen over 40%. And in the last three years, it has seen an almost 160% increase! 

Its share price has dipped a bit since yesterday, after it released its trading update. Because of supply chain disruptions and rising costs, the company has reduced its forecast for both 2021 and 2022. While this explains the softening in its price, I would be very surprised if it continues to hold the stock down. The company still expects “record levels of revenue, profit, and operating margin for the full year 2021”. 

It is little wonder then that its price-to-earnings (P/E) is at a huge 58 times right now. This shows the kind of premium investors place on the financially robust company. But because it looks a little too high to me, I would ideally wait for a market crash before buying the stock. 

AstraZeneca goes from strength-to-strength

I might have missed the opportunity to buy Spirax-Sarco Engineering earlier, when it was still cheap, but I did buy another pricey stock. I am talking about the pharmaceuticals biggie AstraZeneca (LSE: AZN). The Anglo-Swedish company made its name as a cancer treatment specialist. But its popularity rose to a whole new level last year when it developed a Covid-19 vaccine with the University of Oxford. 

With its current share price at £84, it is the fifth most pricey FTSE 100 stock right now. There are huge variations in its P/E estimates across five different sources I checked. The lowest is around 45 times and the highest a huge 100 times. The point here is this:whichever way I look at the stock, it is priced at at least 45 times its earnings, if not much more. 

But then, it has always been the case for AstraZeneca. In the past year, its share price has fluctuated a lot, resulting in almost no gains in the past year. But that would not stop me from buying more of the robust stock for the long term if a stock market crash were to happen. Over the past five years, it has doubled its share price. That, for me, is reason alone to consider buying more of it. 

Full steam ahead

Spirax-Sarco is an engineering firm that provides electric thermal solutions, pumps, and fluid path technologies. The company is an industry leader and has a strong history underlying revenue growth of around 7% over the last decade.

Its recovery from the effects of the pandemic is evident when I look at its financial performance. Results for the first half (H1) of 2021 have improved compared to the corresponding period in 2020. The company recorded organic revenue growth of 17% and profit growth of 42%. Investors have reacted positively and shares are up 7.5% since H1 results were posted on 11 August.

Its share price is up 40.8% in the last year. Also, the company’s dividend yield of 0.7% has increased at a compound annual growth rate of 11% in the past 10 years.  

The company also plays a significant role in developing products for the ESG sector. The thermal energy division of the engineering firm is working on reducing carbon emissions from steam systems. Also, I see its growing partnerships with the medical devices sector as a big plus as we are in the midst of a pharma boom.

There are lingering concerns with Spirax-Sarco’s valuation at the moment. The stock is trading at a forward profit-to-earnings (P/E) ratio of 59. In the event of a market crash, investors could take profits and move to more dividend-heavy investments. I am tempted to wait for a correction before entering at sub-16,000p levels. But the FTSE 100 stock remains high on my watchlist for its steady growth and history of strong performances.

Let’s build

Ashtead Group operates one of the largest equipment rental companies in the UK and the US. Its business model involves buying a broad range of construction equipment and renting it on a short-term basis. Although it is not the most exciting company on my shortlist, returns have been immense.

Its shares have blown past pre-pandemic highs of 2,740p and are currently trading at 6,320p at the time of writing this article earlier today. In the last 12 months, shares have gone up 99% and five-year returns stand at a whopping 358%.

The company posted strong first-quarter (Q1) 2021 results. Compared to the same period in 2020, group revenue went up 21% in Q1 2021 with operating profit up 53% to $477m (Q1 2020: $311m).

With construction efforts restarting in the UK, Ashtead stands to benefit. The company also offers crowd management and perimeter solutions, an area with increased activity now. Analysts expect a 30% increase in earnings this year which I think will translate well to investor returns.

But the global economy has come under some stress in recent weeks with inflation fears and the re-emergence of Covid in parts of the world. Prolonged economic instability could affect construction projects and live events, which would be a major concern for the FTSE 100 company.

But I still think Ashtead is a good investment for my portfolio right now as it has an excellent track record and could see a surge in sales over the next few years.