As an investor looking to build his wealth over decades, I’m naturally drawn to quality growth stocks to buy and hold. The lure gets even stronger whenever I’m given a chance to load up at reduced prices. With geopolitical tensions rising, I think we could be entering such a period now. 

With this in mind, here are three top-tier titans I’ve got my eye on. 

Croda International

Shares in chemicals firm Croda International (LSE: CRDA) are down almost 30% year-to-date. That’s an awfully big drop for such a great company. While I’m not sure I’d buy just yet, I do get the sense that opportunity is knocking increasingly loudly. 

For the uninitiated, Croda has been around for almost a century. It produces ingredients for manufacturers in the home care, beauty, personal care, and fragrance market. It also operates in the Life Sciences space (providing solutions to protect crops, for example). I can’t see either of these markets ceasing to exist, even if Croda has struggled to grow profits recently. 

On the downside, the shares still look highly valued at 28 times forecast earnings. That’s a bit higher than the company’s five-year average P/E. With investors showing a penchant for (possibly-lower-quality) stocks on cheaper valuations right now, I wouldn’t be surprised if there was more selling pressure ahead.

It’s a bit expensive for me at present, so it stays on my watchlist for now. 

Next

FTSE 100 clothing firm Next (LSE: NXT) is another company whose share price has been struggling. A 15% drop in 2022 so far leaves the stock sitting at a 52-week low and changing hands for just 12 times earnings. That’s a low valuation for a firm that has built a reputation for consistently great returns on capital and fat margins.

Then again, it’s worth considering the wider context. With higher prices pushing many in the UK to watch their non-essential spending, I wonder if things could get worse before they get better. Next month’s Q4 numbers will be pivotal in determining how much the business is suffering. Recent activity suggests investors are already bracing themselves for a few nasties.

Under the stewardship of Simon Wolfson, there’s no doubt in my mind that Next is one of the better companies in the FTSE 100. I’m also convinced it can and will bounce back from this sticky patch. 

Even so, I’m inclined to hold off buying for now. 

Auto Trader

A final FTSE 100 growth stock I’m keeping tabs on is Auto Trader (LSE: AUTO).

A beneficiary of the global shortage in semiconductors and, subsequently, new vehicles, buyers have been flocking to its site even more than usual. Indeed, the clamour for used motors sent the share price rocketing last November.

Unfortunately, the very same stock is down 14% year-to-date. Some profit-taking is understandable. Like Next, however, I wonder if demand could soften as inflation places huge pressure on discretionary incomes. That’s even if supply chain issues are resolved.

Having said this, a P/E of 25 is cheaper than digital peers such as Rightmove and considering its dominance of the industry in which it operates. As such, I’d be prepared to buy Auto Trader hand over fist if things get worse over the next few months. Just like this top investment trust.

The post 3 ‘no-brainer’ FTSE 100 growth stocks to buy if markets keep falling appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader, Croda International, and Rightmove. 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.

As we draw to the end of another, shall we say, ‘interesting’ year on the markets, the masochist in me always makes a point of looking to see what stocks I really should have bought at the beginning of 2021. Here are three from the FTSE 100.

Croda International

Consumer Care and Life Sciences company Croda International (LSE: CRDA) has gained 51% in value in the year to Christmas Eve. That makes the stellar 12% rise in the FTSE 100 look almost pedestrian. Much of this momentum has been due to the company managing to exceed analyst expectations on profit over the year. The question is, can this continue?

I’m certainly optimistic. Having now agreed to sell the majority of its Performance Technologies and Industrial Chemicals businesses, Croda intends to move into “faster growth areas” such as healthcare and become a leader in the cropcare market. These moves, according to CEO Steve Foots, will see the company generate “consistent sales growth and an even stronger profit margin”.

The only problem is that Croda now trades on a punchy valuation of 39 times forecast FY22 earnings. As such, I’d be very surprised if the company manages to replicate 2021’s gains.

Nevertheless, this remains a great stock, in my opinion. If I were looking to build a FTSE 100-focused portfolio for the long term, CRDA would easily make the shortlist. One to buy on dips perhaps?

Glencore

Next up is mining and commodities trader Glencore (LSE: GLEN). Its shares have climbed 52% in 2021, so far. Again, this is evidence that picking your own stocks has at least the potential to vastly outperform the market. It also shows that winners can come from multiple, very different sectors.

Glencore’s streak can be attributed to the growing demand for commodities like copper and, more recently, oil. In fact, the company’s interest in the former could continue to be very lucrative in the years ahead as the adoption of electric vehicles and renewable energy gathers pace.

Of course, one issue with Glencore is that its fortunes are, to some extent, beyond its control. Commodity prices can quickly reverse and this leaves me skeptical that the stock will repeat this year’s performance in 2022.

Then again, it might be argued that the potential income on offer more than makes up for this. A 6.8% yield for FY22 is currently forecast. Shares also trade at just 7 times earnings. 

Ashtead

A final FTSE 100 stock that’s done the business for holders in 2021 has been equipment hire business Ashtead (LSE: AHT). Its value has climbed a stonking 72% year to date as rental revenues have soared to record levels.

Naturally, such a run of form could lead to some profit-taking in 2022. The seemingly never-ending pandemic could also cause a slowdown in trading if projects end up being delayed due to safety concerns. However, a forward P/E (price-to-earnings) ratio of 25 doesn’t feel excessive, given the consistently high margins Ashtead achieves.

The outlook is bullish too. With the construction industry in rude health following a post-lockdown rise in demand (not to mention Joe Biden’s infrastructure bill), I don’t doubt the good times can continue for the £27bn-cap.

Another 72% next year? Probably not. However, this is another stock worth keeping in the bottom drawer, in my opinion.

The post 3 FTSE 100 stocks I wish I’d bought in 2021 appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. 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.

Today, I’m providing readers with a look at my wishlist for 2019. These are the stocks I’d love to buy next year.

Unilever

Unilever is already the top stock in my portfolio. I see it as a ‘sleep-well-at-night’ type stock, and I also like the emerging markets growth story. I’m not too concerned by the argument that ‘bond proxies’ will suffer as interest rates rise, because Unilever has a fantastic dividend growth track record. In 2019, I’d like to buy more ULVR. However, I’d prefer to buy the shares under 4,000p, with a yield of around 3.5%.

Diageo

Shares in alcoholic beverage champion Diageo held up well in 2018. With tobacco stocks out of favour, it was one of the top ‘defensive’ stocks that investors turned to as uncertainty increased. I already have a small position in Diageo and I’m keen to boost this, as I like the emerging markets growth story. However, the shares are just a little too pricey for me right now and the yield is quite low. So I’ll be waiting patiently for a pullback.

Reckitt Benckiser

Health and hygiene specialist Reckitt Benckiser is another stock that I have my eye on. I think this is one I might buy sooner rather than later, as its share price has experienced weakness in the last 18 months. Right now, I don’t think Reckitt’s valuation looks overly stretched. However, I’m hoping that with a little bit of market volatility, I can pick it up even cheaper, with a yield of 3% or higher.

Smith & Nephew

Joint replacement group Smith & Nephew is another company I’d like to own. To my mind, it looks to be a good stock to capitalise on one of the most dominant themes across the globe today – the world’s ageing population. I’m keen to get SN into my portfolio. Yet right now, its dividend yield of 1.9% looks a little underwhelming. As such, I’m happy to wait for a more attractive entry point.

Hargreaves Lansdown

Hargreaves Lansdown is a stock I’m quite bullish on. It operates the UK’s largest investment platform and its growth in recent years has been impressive. Given that stock markets tend to rise over time, I think Hargreaves looks well positioned to keep growing in the years ahead. HL is certainly not a cheap stock, as its P/E is 28.4. Yet when you consider the company’s earnings and dividend growth, I think it deserves a high valuation. I’ll be looking to buy more on market weakness.

Croda International

Lastly, another stock that I’d like to buy at the right price is Croda International. It makes speciality chemicals for a number of industries including cosmetics, healthcare, and farming. Croda screens up as a high-quality stock. It generates a high return on equity, has low debt, and it has recorded 19 consecutive dividend increases. The stock’s valuation is a little high for me right now, so I’m hoping 2019 will throw up some more attractive entry points.

The post Ask a Fool analyst: What are the top FTSE 100 stocks I want to buy in 2019? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Unilever, Diageo and Hargreaves Lansdown. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown. 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.

AstraZeneca (LSE: AZN) is a large-cap share which seems to offer high total return potential after a period of share price growth. It appears to have a wide margin of safety at a time when some stocks seem to be somewhat overvalued following a decade-long bull market.

High price

One such company is Croda (LSE: CRDA). It released a third quarter trading update on Thursday which showed the strong sales momentum of the first half of the year has continued. Its core business constant currency sales have increased by 4.5%, with growth recorded across all regions as the company focused on greater innovation.

In its Personal Care segment, sales moved 4.9% higher, while Life Sciences posted sales growth of 8.5%. The Performance Technologies segment reported an 1.8% rise in revenue, while the company’s ‘stretching the growth’ strategy seems to be working. A disciplined allocation of capital, and a focus on creating more technology and intellectual property, could lead to further improvements in the company’s financial performance.

While Croda seems to be performing well, its investment appeal appears to be somewhat limited after a share price rise of 18% in the last year. It has a price-to-earnings (P/E) ratio of around 26, which suggests that it may be overvalued, given that it’s due to record a rise in earnings of 6% this year, and 8% next year.

Growth potential

In contrast, AstraZeneca still seems to offer good value for money after its share price rose 14% in the last year. The company’s bottom line is due to return to growth next year, and this means it has a price-to-earnings growth (PEG) ratio of 1.7. Given its defensive characteristics and improving pipeline, this suggests that more capital growth could be ahead.

Of course, many investors may feel that the outlook for FTSE 100 shares remains uncertain at the present time. There are fears surrounding the US interest rate, while further tariffs could be placed on imports by a variety of countries across the world. In such a situation, defensive shares, such as those operating in the healthcare segment, could hold appeal, since they may offer lower correlation to the rest of the economy. AstraZeneca, for example, may be less dependent upon the world economy’s growth rate in the short run than a more cyclical stock.

With the company continuing to invest in its pipeline and having the financial strength to make further acquisitions, it seems to be in a strong position to outperform the FTSE 100 in the long run.

The post Have £1,000 to invest? Why I’d buy FTSE 100-member AstraZeneca over a cash ISA appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. 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.

Profiting from data 

One is credit bureaux, which hoover up personal data and credit payment histories from hundreds of millions of people, synthesise the data and sell it on to financial services firms and the like that base credit acceptance decisions on the information. For market leader Experian (LSE: EXPN), this means steady revenue growth throughout the economic cycle as consumers apply for loans in recessions and boom times alike.

And the company isn’t just betting on steadily growing demand from its core UK and US credit services divisions to boost long-term profits. Rather, the group is expanding into growth regions such as Latin America and Asia where consumer use of credit is growing rapidly from a small base. In the quarter to December, organic growth from Latin American operations was 7% and in Asia it was 12%, which together with strong growth in the US saw group revenue rise 5% year-on-year on a constant currency basis.

Thanks to the incredibly high barriers to entry for competitors, Experian’s reams of data fetch a high price from lenders who have only two realistic competitors to consider. Last year this meant operating margins reached a whopping 24.7%. High cash flow is being used to acquire related business service companies in high-growth categories such as IT security that are already paying off.

On top of the non-cyclical nature of its business and very good growth opportunities, Experian also returns gobs of cash to shareholders. Last year this included $381m in dividends that equals a 2% yield, with an even bigger share buyback programme of $600m well on its way to completion this year. All of these positive characteristics mean Experian is pricey at 23.7 times forward earnings, but for a stable business with great long-term potential, I reckon this isn’t a ridiculous price to pay.

Modern day alchemy

Also on my list is Croda (LSE: CRDA), a speciality chemicals firm that grew sales and profits straight through the financial crisis as management steered the group towards selling more chemicals for consumer goods, rather than more cyclical industrial end uses.

This change in focus has proven a goldmine in recent years as its created immense sales opportunities, evened out earnings and helped boost margins. Last year, the group’s constant currency revenue grew 4.6% to £1.3bn, while adjusted operating profits increased by 6.9% to £332m.

For now, management uses the high and rising cash flow from operations to invest in its internal R&D process, acquire complementary businesses and push into other sectors such as life sciences. Like Experian, Croda isn’t cheap at 24 times forward earnings, but with good growth prospects, a rapidly growing 1.7% dividend yield, and non-cyclical characteristics, its still one great business I’d love to own in my retirement accounts.

The post The non-cyclical FTSE 100 defensives I’d buy and hold forever appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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.

One company which could help investors to achieve that goal is Sirius Minerals (LSE: SXX). It released a quarterly progress update on Thursday. Although its shares have been volatile, they could generate high returns in the long run.

In-line performance

In many ways, the update from the company was a case of ‘so far, so good’. The construction of its ambitious production facility in North Yorkshire is moving ahead as planned, with there being no cost or time overruns at the present time. There has also been progress in terms of finding the right contractors. In fact, on this front the company has been able to make pragmatic changes in recent months which may lead to the delivery of first production up to six months earlier than previously anticipated.

The development of further customer relationships remains a key goal for the business. It anticipates there will be progress in this regard over the medium term. It is also continuing to make progress with agronomy trials, while it expects developments to be made on its mineral transport system following the progress on early works and mine shafts.

Long-term potential

Since Sirius Minerals is not due to commence production for around two or three years, the prospect of a significantly higher share price during this time may be somewhat limited. However, the potential for the business to generate high levels of capital growth once production commences seems to be significant.

One reason for this is the company’s net present value of $15.4bn. This assumes production of 20m tonnes per year of its POLY4 fertiliser, which at the present time seems to be an achievable goal. Since the stock has a market cap of £1.4bn (around $2bn at current exchange rates), there seems to be a wide margin of safety. Therefore, over the long run there could be scope for significant share price growth if the company is able to continue to deliver on its strategy.

Consistent performance

Also offering growth potential over the long run is Sirius Minerals’ sector peer Croda (LSE: CRDA). The company has a solid track record of earnings growth, with its bottom line increasing in four of the last five years. During this time its net profit increased at an annualised rate of 8%. Looking ahead, it is expected to grow at a similar pace over the next couple of years. This could make it relatively appealing to investors at a time when uncertainty is starting to build across the index.

While Croda has a relatively high price-to-earnings (P/E) ratio of 23.8, its consistency could mean it is worthy of a premium rating compared to many of its sector and index peers. And with dividends being covered 2.2 times by profit, its 2% dividend yield could become much more enticing over the coming years. As such, now could be the right time to buy it for the long run.

The post Could Sirius Minerals plc make you an ISA millionaire in 20 years? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Sirius Minerals. 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.

Well, there’s no doubting the positive effects of cost-cutting and rising oil prices on the company’s income sheet. Recently released Q3 results showed underlying replacement cost profit, its preferred metric, doubled from $0.9bn to $1.8bn year-on-year (y/y) and operating cash flow leapt from $2.5bn to $6bn. The company has now reduced operating costs so that its operations are cash break-even at $42/bbl or $49/bbl if including dividend payments.

Quarter-on-quarter the company’s balance sheet also showed improvement with gearing down to 28.4%, although this is still at the upper end of management’s 20%-30% target. And with capex still being pared down to the bone, production rising and downstream operations’ profitability at all-time highs, the company’s dividend is looking as safe as it has in years. Year-to-date underlying cash flow still doesn’t cover dividends, capex and fines related to the Gulf of Mexico spill, but the situation is looking better and better.

In sum, BP definitely appears to be in good shape with dividends on track to be covered from 2018 onwards, its operating costs rebalanced for an extended period of low oil prices, and the potential for balance sheet improvement should oil prices continue creeping up.

Unfortunately, with its shares priced at a full 23.5 times forward earnings, much of this upside is already baked into its share price. I believe this is a steep price to pay in such a volatile and cyclical industry, especially given ongoing uncertainty over whether or not American shale producers will continue to essentially put a cap on oil prices due to their ability to relatively easily open the spigots and increase the supply of low-cost-of-production oil.

Chemically-juiced returns 

A much more interesting long-term option in my eyes is speciality chemicals manufacturer Croda (LSE: CRDA). Like BP, it isn’t cheap at 23 times forward earnings, but the firm does offer more reliable growth prospects due to its advanced materials and additives products being integral for everything from electronics to make-up and pharmaceuticals.

Third-quarter results  showed positive momentum from each of its core business lines more than compensating for continued weakness in its industrial segment as group sales rose 4.4% y/y, excluding the positive effects of currency movements. Management also disclosed margins up slightly, which is impressive, as operating margins in H1 were already a very attractive 24.8%.

Looking ahead, the company’s outlook appears quite bright as management’s strategy is to target fast-growing market segments and geographies with an emphasis on the high-value-added, high-margin products where it has a strong competitive advantage. And with net debt just one times EBITDA, management has the balance sheet to pursue acquisitions should attractive targets present themselves.

Croda’s shares may not look cheap but their current valuation is largely in line with historic averages, which together with a decent 1.8% dividend yield and very good growth prospects leads me to view the company very favourably.

The post One FTSE 100 growth stock I’d buy ahead of BP plc appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended BP. 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.

The secular tailwinds propelling the company’s growth are the increasing globalisation of product development, sourcing and manufacturing that are constantly under increased regulatory and shareholder scrutiny. This is where Intertek steps in to provide quality assurance at every step of the process, making it a vital link in the risk management system of any multinational firm.

As this is by its nature an international business, Intertek is currently reaping the rewards of the weak pound. In the first quarter of the year, sales rose 14.2% year-on-year with a full 12.4% of this improvement down to currency translation benefits. With little signs of sterling making a recovery any time soon, it certainly appears the company will continue to benefit from this trend in the coming quarters.

Finally, management has been rightfully prioritising growth in the high margin, high growth products division rather than in the cyclical natural resources or trade divisions. Increased attention to this segment is paying off with organic growth of 5.8% in Q1 bolstered by continued acquisitions.

On top of significant growth opportunities, Intertek is also in a great position financially with net debt a reasonable 1.5 times EBITDA, a highly profitable business that produced £318m in free cash flow last year on £2.5bn in sales and operating margins that improved to 16%. All of these characteristics lead me to believe the company’s shares are worth buying right now despite trading at 24 times forward earnings.

The benefits of Brexit

Another FTSE 100 giant whose shareholders have enjoyed 2017 immensely is Croda (LSE: CRDA). Shares of the speciality chemical maker are up 24% to start the year as the weak pound and solid results have increased investor optimism.

While a large part of the 19.1% year-on-year sales increase posted in Q1 was down to the weak pound, organic growth of 4.9% is great to see and points to management’s successful trading strategy. This strategy is to re-focus on its core business, transition from distributor to direct sales model in key regions, and to take advantage of overall market growth through constant product innovation.

The benefits of operating as a major player in a relatively niche industry is that Croda enjoys very impressive pricing power. We see this in the company’s 2016 results where operating margins rose to 23.9% due to continued focus on cost-cutting, a different mix of product sales and the weak pound.

With margins this high the business is also kicking off impressive cash flow, despite heavy capital investments. Last year free cash flow was £155.5m from £1.2bn in sales, which helped keep leverage down at 1.1 times EBITDA. As a major producer of chemicals for personal care products such as make-up, Croda’s performance is tied to that of the global economy. But with high margins and solid growth prospects, I reckon the company’s shares are worth a second look, trading as they are at 22 times forward earnings.

The post 2 fast rising FTSE 100 growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Intertek. 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.

Resilient growth

Reporting on Wednesday was British American Tobacco (LSE: BATS). Its results for the first half of the year show it is making encouraging progress with its current strategy. Although volumes are expected to decline for the full year, they are set to be below the volume decline of the wider tobacco industry. The main reason for this is the strength of the company’s brands, and the customer loyalty which they enjoy. The Global Drive Brands have continued to deliver profit growth, although the company expects the bulk of profit growth to be weighted towards the second half of the year.

Looking ahead, British American Tobacco could become a more popular stock. The main reason for this is the resilient growth potential which it offers. Sales of tobacco products will not be affected by a change in government, nor will Brexit harm the company’s outlook. Therefore, its defensive qualities could cause investor sentiment to improve at a time when risks appear to be on the increase for UK investors.

Alongside this defensive business model is an improving growth outlook. The company’s investment into reduced risk products such as e-cigarettes may be hurting its cash flow, but it could provide a new avenue for growth over the medium term. While the company’s shares have already risen by 18% since the start of the year, more capital growth could lie ahead.

Growth potential

Also offering further upside potential after a strong first half of the year is speciality chemicals company Croda (LSE: CRDA). Its shares have risen by 24% since the start of the year, but do not yet appear to have fully factored-in the company’s growth potential.

For example, in the current year the business is expected to record a rise in its earnings of 28%. This is around four times the forecast growth rate of the FTSE 100, and yet Croda trades on a price-to-earnings growth (PEG) ratio of only 0.8. This suggests that it offers growth at a reasonable price. At a time when the FTSE 100 is trading at a record high, this could lead to improving investor sentiment.

In addition, Croda offers an improving income outlook. It may only yield 2.1% at the present time, but dividends are due to rise by 8.6% next year. This is well ahead of an inflation rate which could continue to rise. And with the company having a dividend coverage ratio of 2.1, further dividend growth could lie ahead over the medium term.

The post Why I’d buy these 2 rising FTSE 100 shares appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of British American Tobacco. 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.

Third quarter results released today for speciality chemicals maker Croda (LSE: CRDA) saw sales jump a full 20.1% year-on-year to hit £315m. Unfortunately, management was very upfront about the fact that “with over 95% of sales outside the UK, this largely reflected favourable currency translation, with the impact of weaker sterling increasing sales by 17.6%.”

Stripping out the effects of the weaker pound, constant currency sales did rise 2.5% year-on-year due to the positive effects of an acquisition in Croda’s crop care division. However, core underlying sales dropped 2.5% on the back of falling sales of a major generic pharmaceutical ingredient.

Sales compressing is never a good sign and will be worth watching in the coming quarters. But, if underlying sales return to growth then Croda becomes very attractive. A major reason is that the company is well diversified by designing chemicals for everything from haircare, lipstick and sunscreen to seed treatments and environmentally-friendly paint coatings.

Developing and selling these products is also a very capital light business, which produces significant free cash flow. And, a cost-conscious management team and increasing sales of patented products allowed operating margins to improve to 25.7% in H1.

The impressive cash generated by these margins and tight control over capex allow Croda to make targeted acquisitions without resorting to high leverage. At the end of July the company’s net debt-to-EBITDA ratio was only 1.3, a very healthy level for such a cash generative business. This is allowing dividends to increase substantially, although a long rally in share prices means they only yield 2%. Croda is certainly an attractive company, and I believe the shares are worth following in the coming quarters.

Worth a look?

While Croda’s products focus on retail applications, another of the FTSE’s leading industrial firms, Elementis (LSE: ELM), concentrates on industrial applications for oil rigs, cargo ships and construction materials. Elementis has been hit hard by the downturn in the oil & gas industry, with revenue from this key segment down 26% in the first half of the year.

This dramatic fall in sales drove overall group revenue down by 7% year-on-year and led to operating margins collapsing from 19% to 15%. A decrease in oilfield activity isn’t the only headwind facing Elementis as the strong US dollar has negatively impacted sales in its chromium division and forced the company to issue a profit warning in June.

That said, its core business is quite impressive. Its operations still spin off significant cash, which management has no qualms about returning to shareholders due to having no debt. With net cash at the end of June standing at $37.5m, the company was able to maintain interim dividends even as earnings fell.

The twin headwinds facing Elementis, a struggling oil & gas sector and strong US dollar, aren’t about to stop any time soon. However, with a great underlying business, shares trading at a relatively sane level and dividends already yielding 3.3%, now could be the time for contrarian investors to take a closer look.

The post Should you buy this stock after sales rose 20% in Q3? appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Elementis. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.