I don’t think choosing the best shares to buy right now is easy. Not because there’s a dearth of value. But because we’re spoilt for choice with so many stocks on offer at discount prices.
The near-term economic outlook is certainly foggy, due to the impact of Covid-19. However, it’s at such times of uncertainty and fear that far-sighted investors can pick up shares at bargain prices. A trading update today from FTSE 100 equipment rental giant Ashtead (LSE: AHT) persuades me it’s one of the best shares to buy for May. This, with a view to owning it for the long term.
Best shares to buy offer high investment returns
Ashtead is an international equipment rental group with national networks in the US, the UK, and Canada. Indeed, it’s the largest firm in the sector in the UK. It’s also the second-largest in North America. Acquisitions have helped drive its growth. These included the US equipment rental interests of Rentokil, incidentally another of my best shares to buy at the moment.
The group’s business model is very simple. Purchase equipment from leading manufacturers, rent it on a short-term basis, and finally sell it in the second-hand market. Because of its size, Ashtead can buy a wide range of equipment, and at good prices. The range of equipment – from small hand-held tools to the largest construction gear – also means it has a wide range of customers.
A simple business model, economies of scale, and a diverse customer base are attractive qualities for investors. They tend to both reduce risk and increase the prospect of high investment returns. Even after the recent fall in its shares to a discount price, Ashtead has delivered an annualised 33% return for investors over the last decade.
Best shares to buy need survivability
In looking for the best shares to buy now, survivability is an essential quality. I was very encouraged by Ashtead’s trading update today. The company said its general tools business has suffered a decline in volume, due to the impact of Covid-19. However, this has been mitigated by its speciality businesses. Notably, “Sunbelt Rentals is designated as an essential business in the US, UK, and Canada, supporting government and private sector responses to the pandemic.”
It added: “This includes providing vital equipment and services to first responders, hospitals, alternative care facilities, testing sites, food services, telecom, and utility companies while continuing to service ongoing construction sites and increased facility maintenance and cleaning.”
The company said it remains in “a strong financial position.” And that it expects underlying profit before tax for its financial year ending 30 April to be around £1,050m (down 5% on the previous year). The shares are currently at 1,950p, or 30% below their pre-crash high. The stock is trading at a cheap 8.3 times the expected pre-tax profit.
Going forward
Looking ahead to fiscal 2021, the company said it’s modelled a variety of downside scenarios over the coming year, “reflecting activity levels much lower than those which have been experienced to date.” It reckons it would remain free cash flow positive “under all these scenarios.”
I believe Ashtead has strong survivability credentials. This, together with the current discount share price, attractive business model, and long-term growth prospects, makes it one of the best shares to buy today, in my book.
