These two FTSE 100 shares could help protect your portfolio against a second lockdown this autumn, but there’s a problem. Both are pretty expensive.

It helps to be market leader in a niche product, and Spirax-Sarco Engineering (LSE: SPX) specialises in steam. This can be used to heat or sterilise food production, oil refining, beer making, and drug manufacturing.

Stock market crash survivors

The Spirax-Sarco share price is one of the top performing FTSE 100 shares. It delivered a total return of 768% over 10 years to 31 December 1999, with dividends reinvested. The group was beaten only by equipment rental specialist Ashtead Group (a whopping 2,589%!!) and life-saving technology specialist Halma (932%), according to research from AJ Bell.

Spirax-Sarco didn’t escape the March stock-market crash completely unscathed. It bounced back with tremendous speed, though, rising almost 25% over the last six months. Earlier this month, it reported an 8% drop in half-year operating profits to £119m, with revenue down 4% to £569.7m.

As the economy struggles to escape the clutches of Covid-19, second-half growth will be lower. Management still lifted the interim dividend 5% to 33.5p. It has form on this front, having hiked its dividend, at an average rate of 7% a year, for the last decade.

This FTSE 100 share is even more expensive

Don’t let that low 1.1% yield fool you. It looks small because the share price has risen so fast, up a thumping 230% over five years. The big problem that it is priced for growth, trading at 38 times earnings. Some may baulk at that price. If you do, put Spirax-Sarco on your watchlist and see what happens in the next crash.

The Ocado Group (LSE: OCDO) share price leaves Spirax-Sarco standing. The FTSE 100 group’s share price is up an incredible 134% in six months, and 624% over five years. Although best known as a grocery delivery group, investors have been buying it as a global technology play. Ocado hopes to “change the way the world shops”, in its own words, by selling its Smart Platform to grocery retailers around the world. It also has a joint venture with M&S.

Ocado benefited from rising demand during the lockdown but what really matters is whether it delivers on its promise to build worldwide sales. This FTSE 100 growth share has been losing money as it builds its business, but latest half-year losses narrowed from £147.4m in 2019 to £40.6m, as its online delivery technology generates new revenues in Paris and Toronto.

Ocado is priced for growth and is expensive to buy today, trades at a dizzying high price/revenue ratio of 10.6 times, way more than most FTSE 100 shares. That means you are at risk if Ocado’s momentum fades. It’s too expensive for me, but I said that six months ago and look what its share price has done since.

The post These 2 FTSE 100 shares have made investors rich in the market crash. Here’s what I’d do now appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.

I think one UK business that ticks all his boxes is outsourcing group Bunzl (LSE: BNZL).

Bigger is better

Bunzl is not a particularly unique business, but its size gives it a robust competitive advantage over the rest of the outsourcing industry. Outsourcing tends to be a relatively low-margin business because the market is so competitive. However, Bunzl’s scale and operating efficiencies mean it commands industry-leading profit margins.

For 2018, the company reported an operating profit margin of 5.3%, more than triple the industry average. Its return on capital employed (ROCE) — a measure of profitability for every £1 invested in a business — was 13.2% for 2018, compared to the market average of 3.7%.

These numbers tell us Bunzl is a highly profitable business with a robust competitive advantage, two of the hallmarks Buffett usually looks for when analysing any enterprise.

The group also has a good track record of creating value for shareholders. For the past decade, management has been successfully rolling cash generated from operations back into the business, growing sales and profits. Net profit has grown at a compound annual rate of 9.6% over the past six years. Book value per share has grown at 12.3% over the same time. The dividend has also grown in line with profitability, rising at a compound annual rate at 9% since 2013.

All of the above leads me to conclude Buffett might be interested in buying Bunzl today.

One of a kind

Another FTSE 100 stock that I think he might be interested in is Spirax-Sarco Engineering (LSE: SPX). This company reminds me of a recent Buffett acquisition, Precision Castparts. What he likes about the latter is its strong reputation for quality with customers. Spirax has earned a similar reputation over the past six decades, and this shows in the firm’s profitability metrics.

Once again, industrial engineering tends to be a low margin business, but Spirax’s operating profit margin of 25% last year is testament to the group’s reputation. Customers are willing to pay more for quality. ROCE hit 23% last year.

Unfortunately, the market is well aware of Spirax’s profitability and, as a result, the stock isn’t cheap. It’s currently dealing at a forward P/E 28.

However, Buffett has shown he’s willing to pay up for quality in the past. He paid around 20 times earnings for Precision Castparts, which suggests to me a P/E of 28 might not be too much of a stretch for such a profitable business with its established reputation.

A dividend yield of 1.4% only adds to the attraction, in my opinion, especially because the distribution has increased by nearly 100% over the past six years.

The post 2 FTSE 100 stocks I think Warren Buffett would buy appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It isn’t a household name, but the company has been a fantastic long-term investment over the past few decades. Management is focused on building the business for the long term with careful investment in new products and services as well as prudent capital allocation. 

As well as these factors, Halma’s growth has been helped by the tailwind of health and safety regulation, which has helped drive the sales of its hazard detection and life protection products. 

It’s unlikely this trend will change anytime soon. As long as Halma continues to reinvest sensibly, as it has done in the past, earnings should continue to rise thanks to the combination of organic growth and sensible acquisitions.

Robust growth

Earlier this year, Halma reported a 17% increase in adjusted earnings per share for its 2018 financial year, off the back of a 13% increase in group revenue. To celebrate, management decided to increase the firm’s full-year dividend by more than 5%, the 40th consecutive year of dividend increases.

The dividend is covered 3.3 times by earnings per share, so even after this increase, the company still has plenty of cash available to reinvest. This reinvestment is expected to translate into earnings growth of 18% for fiscal 2019, according to City analysts, pulling earnings per share up to 57.2, putting the stock on a forward P/E of 33.4.

The dividend yield stands at 0.9%, which is far below the FTSE 100’s average. But in my opinion, Halma’s dividend track record more than makes up for this. 

Global champion

Spirax-Sarco Engineering (LSE: SPX) is another business that might not have household name status but shouldn’t be ignored as an investment. Spirax supplies engineered solutions for the design, maintenance and provision of industrial and commercial steam systems. The company has been in the business for more than 130 years and has carved out an excellent reputation for itself in this niche industry. 

Steam systems can be both complex and dangerous if they go wrong, so customers don’t want to skimp on quality. That’s where Spirax comes in. The firm’s competitive advantage is its reputation and global presence, which allow it to demand sector-leading operating margins.

Last year, for example, the enterprise reported an operating profit margin of 26%, three times higher than the engineering industry average. 

The company recently informed investors it was seeing some weakness in its end markets, which will hit revenues for 2019. However, I think this could be an excellent opportunity to snap up shares in the global giant.

The stock is off around 10% since the end of July and by 14% since mid-June. For a company that rarely puts a foot wrong, this is a rare opportunity to buy.

The dividend yield currently stands at 1.3% and the payout has grown at a compound annual rate of more than 10% for the past decade, putting Spirax in an elite club of dividend stocks. 

The post Two FTSE 100 stocks I think will pay you for the rest of your life appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma. 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.