The FTSE 100 index hosts some of the top companies in the world. While the index receives a lot of investor interest, it is not equally distributed across every company. Darlings like Rolls-Royce and Lloyds see high daily trading volumes, while other top companies are overlooked, especially during a bear run.

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. 

The post Hidden gems: these 2 FTSE 100 shares look ready to take off appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan 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.

I’ve always used market slumps as an opportunity to buy high-quality shares at discounted prices. And this time is no different. I’ve bought these two FTSE 100 shares that I believe to be well-positioned for the future with strong fundamentals.

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.

The post I’ve bought these 2 FTSE 100 shares! Here’s why appeared first on The Twelfth Magpie.

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Finlay Blair owns shares in Airtel Africa Plc and Spirax-Sarco. The Motley Fool UK has recommended Airtel Africa Plc. 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.

FTSE 100 member Spirax-Sarco Engineering (LSE: SPX) may not be a company that grabs the headlines very often but that hasn’t stopped this hyper-reliable growth company from setting record share price highs recently. Today’s half-year results suggest there’s no danger of business drying up anytime soon.  

“Strong recovery”

Spirax is actually three businesses rolled into one. The first two divisions — Steam Specialties and Electric Thermal Solutions — provide customers with products related to fluid control and electrical process heating. The third business — Watson-Marlow — supplies “virtually maintenance-free pumps“. 

Positively, every part of Spirax showed excellent order book growth over the period. Indeed, CEO Nicholas Anderson reflected that the “strong recovery of global industrial production in the first half of this year, combined with exceptional COVID-19 vaccine related demand in Watson-Marlow, has supported strong organic sales and profit growth across all three businesses.” 

All told, revenue at Spirax rose 13% to £643.7m over the six months to the end of June. Pre-tax profit jumped 41% to £150m.

While far from being an income stock, it’s also worth noting Spirax hiked its interim dividend 15% to £38.5p per share today. Since any management team would be loathed to cut bi-annual payouts not long after raising them, I take this as an indication of just how confident the company is on its outlook.

As things stand, analysts have the company returning 129p per share in 2021. However, that equates to a yield of just 0.8%. So, while encouraging in itself, I wouldn’t be snapping up this stock if I were looking to live off the income generated by my investment portfolio. 

What’s not to like?

Taking into account today’s rise, SPX shares are up almost 45% over the last year. For a FTSE 100 juggernaut, that’s a brilliant result. The performance over the longer term is even more impressive. Since 2016, they’re up 250%. Even the market crash in March 2020 failed to disrupt this positive momentum for long.

Unfortunately, great stocks are rarely without friends. Before markets opened this morning, SPX shares were already trading at nearly 48 times earnings. Can such a valuation really be justified?

Well, the company definitely scores on the quality metrics I pay attention to. It generates consistently high returns on capital, for example. Margins are equally impressive too. In vast contrast to other FTSE 100 stocks, SPX also boasts a solid balance sheet with just under £193m in net debt (at the end of June). 

On the other hand, such a frothy valuation could make this a riskier play than it first appears. Any sign of a slowdown in economic growth and at least some investors may decide to bank profits. A new Covid-19 variant running riot could also cause disruption to Spirax’s supply chain. 

Buy this FTSE 100 stock now? 

All things considered, it’s really no surprise SPX continues to set new share price highs. This remains a great company in a niche market that consistently does all the right things. From a very long-term perspective, I’m inclined to think the shares will continue to perform for investors. 

Nevertheless, I’m not sure I’d make adding this company to my portfolio a priority right now. No stock is worth paying any price for, after all. In my opinion, the are a number of equally good companies available for far less elsewhere in the FTSE 100.  

The post This FTSE 100 stock just hit an all-time high. Should I buy? 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 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.

That’s not to say, however, that every stock out there is in bargain territory. Indeed, with a valuation of 44 times forecast earnings prior to the bell this morning, platform provider Hargreaves Lansdown (LSE: HL) is anything but inexpensive.

Based on today’s albeit-fairly-positive trading update, I’d probably hold off from buying the stock right now.

Positioned for growth

Thanks in part to welcoming 53,000 new clients, the company recorded net new business of £2.9bn over the four months to the end of April, bringing the total to £5.4bn in the year to date (10 months to April 30).

Both of the above are lower than over the same period in 2018 (£3.3bn and £6.6bn, respectively), but it’s worth remembering markets were pretty volatile towards the end of last year with investors pulling money out of equities at a rapid rate.

Fortunately for Hargreaves, the return of positive sentiment in 2019 so far has allowed it to report holding a record £97.8bn of assets under administration by the end of the period. This has, in turn, helped the business achieve net revenue of £159.5m in the four months, ahead of the £150.6m achieved in 2018. 

Shares in Hargreaves are down 1% right now, suggesting this news was already priced in. 

Taking into account its extraordinarily large returns on capital and operating margins, this is a quality business and one that should go from strength to strength.

As CEO Chris Hill remarked today, the ongoing need for its services from investors and savers should mean the company is “well positioned to deliver attractive growth,” despite the rather precarious political and economic state of affairs we’re in. 

Nevertheless, it’s worth remembering that no stock is worth buying at any price. As such, the £11bn-cap remains on my watchlist as one to capture on any general weakness in the market. 

Undeniably pricey

Also releasing a statement on trading today was thermal energy management expert Spirax Sarco Engineering (LSE: SPX). Again, this update was more than respectable.

Organic sales growth since the beginning of 2019 has remained stable despite weakening global Industrial Production growth forecasts (2% compared to 2018’s 3.1%). Encouragingly, operating profit was also ahead of the same four-month period last year. 

Broken down, geographically-diversified Spirax reported strong growth in the Asia Pacific region, although some of this was the result of “large one-off projects.”

Elsewhere, the company saw a “modest benefit” of customers cautiously stockpiling as the UK approached its original EU exit deadline at the end of March. 

Importantly for those already invested, guidance on growth and margins for the full year were left unchanged, although this does rest on the assumptions that trading doesn’t get worse and exchange rates don’t move all that much.

Like Hargreaves, Spirax is another of the FTSE 100’s (justifiably) dearer stocks based on traditional ‘quality’ metrics. That said, its share currently trade on 32 times forward earnings. For a company whose “short order book provides only limited visibility,” that’s undeniably pricey. 

Considering its average P/E from the last five years has been just under 25, this will also stay on my watchlist for now.

The post 2 high quality FTSE 100 growth stocks I’d buy on any weakness appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

In fact, if I was to tell you that this FTSE 100 stock yields just 1.4% for 2019, a figure that sits well below the broader forward average of 4.5% for Britain’s blue-chip index, you may well think that I’m punchy to consider this a terrific income share. Why pick this over Taylor Wimpey and its 10%-plus yield, for example, HSBC and its 6% yield, or Aviva and its yield of 7.5%?

Rip-roaring trading results

These are all great stocks for income seekers but this doesn’t mean that Spirax-Sarco can’t also be considered a delicious dividend champion. Why? Well, the rate at which the engineer has lifted ordinary dividends in recent times (up 55% over the past half a decade, in fact) and has dished out special payouts in the past five years too, that’s why.

And judging by its most recent financials, this business, which designs technologies to control and harness the power of steam and industrial fluids, would appear to be in great shape to keep supercharging dividends for some time yet. Revenues tore 15% higher in 2018 to £1.15bn while adjusted pre-tax profit galloped to £254.6m, up 11% year-on-year.

And why am I confident that profits can keep on climbing? Well, the strong sales growth that Spirax-Sarco is witnessing across all of its divisions, allowing turnover at group level to continue outperforming the broader market. On top of this, the Cheltenham company’s commitment to acquisitions should also help the bottom line to keep expanding in spite of tougher times, like that of heating and temperature product specialist Thermocoax which was sealed last week.

Breakneck pace

City analysts are expecting profits growth to cool a little in the medium term in reflection of slowing industrial markets, and bottom-line rises of 4% and 7% are forecast for 2019 and 2020 respectively. And this means that annual dividend growth is expected to cool a little too.

That’s not to say that payout increases are set to disappoint, though. Indeed, last year’s 100p per share reward is still expected to jump to 108p in the current period, yielding that aforementioned 1.4%. And in 2020, a 117p dividend is estimated, a figure that nudges the yield to 1.5%.

Safe as houses

As I said, these yields might not be the biggest, but on the other side of the coin, dividend projections at the engineer look a lot stronger than many of those on the Footsie on account of its bright earnings outlook and excellent cash generation (which means that net debt-to-EBITDA currently stands at just 0.8 times).

What’s more, news that projected dividends for this year and next are covered 2.4 times by projected profits, comfortably above the widely-regarded security benchmark of 2 times, should soothe the nerves of even the most cautious share pickers.

For long-term investors happy to sacrifice monster yields today for the prospect of strong and sustained dividend hikes many years into the future, I reckon this blue-chip may be one of the best.

The post A FTSE 100 dividend king that I’d buy today and hold forever appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has recommended HSBC Holdings. 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.

This, then, could be a good time to buy it for the long term. It trades on a low valuation, has a high yield and could benefit from various changes it is making to its structure. In contrast, another FTSE 350 share that released results on Thursday could be worth avoiding due to its high valuation and modest growth prospects.

High price

The company in question is engineering business Spirax-Sarco (LSE: SPX). Its full-year results showed a rise in revenue to £1,153.3m, while adjusted operating profit moved 50% higher to £299.1m. It recorded strong organic sales growth in Steam Specialties and Watson-Marlow, while Gestra and Chromalox performed well.  This suggests that the implementation of its strategy is progressing well, with recent acquisitions contributing to an improving overall performance.

Looking ahead, the company is forecast to post a rise in net profit of 7% in the current year. While this would be an encouraging performance, its valuation suggests that investors are anticipating a stronger outlook. It trades on a price-to-earnings (P/E) ratio of over 25, which indicates that it currently lacks a margin of safety.

Although Spirax-Sarco is performing well from a business perspective and expects to continue to grow its top and bottom lines over the medium term, it may lack investment appeal due to its high market valuation.

Recovery potential

In contrast, the Standard Life Aberdeen share price appears to be very cheap at the present time. Following its fall over the last year it now trades on a P/E ratio of 10, which suggests that it could offer a margin of safety. Further evidence of its low valuation can be seen in its dividend yield, which is 9.5%.

As well as being a cheap stock, Standard Life Aberdeen could perform better than many investors are currently anticipating. In the current year it is forecast to deliver a rise in earnings of 9%, despite continued risks facing the global economy. With the company in the process of changing its structure in order to focus to a greater extent on areas where it may have a stronger risk/reward opportunity, its potential to generate long-term profit growth could improve.

Certainly, Standard Life Aberdeen may not be a stock for less risk-averse investors. Investor sentiment may remain downbeat in the near term as it continues to face an uncertain set of trading conditions while seeking to make significant changes to its structure. However, for investors who are looking to pick up a high income return and have the patience to wait for capital growth over the long run, the company’s strong position in what could be a growing industry may lead to high returns in the coming years.

The post FTSE 100-member Standard Life Aberdeen is down 40% in 1 year. Here’s what I’d do now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Standard Life Aberdeen. The Motley Fool UK has recommended Standard Life Aberdeen. 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.

Furthermore, the company appears to have a sound strategy as it seeks to offer an improved risk/reward ratio. Could it therefore reach 300p this year, or are investors better off buying a more consistent FTSE 250 stock that reported a positive update on Tuesday?

Improving outlook

The prospects for oil producers such as Tullow seem to be improving. A rising oil price means that the entire sector is becoming more profitable, and this trend could continue over the medium term.

Clearly, the relationship between demand and supply is key to the industry’s outlook. And while there has been a rebalancing between demand and supply, this situation could change depending on factors such as OPEC production levels. As a result, investors may wish to seek wide margins of safety from oil and gas stocks in order to obtain a favourable risk/reward ratio.

Valuation

With Tullow Oil trading on a price-to-earnings (P/E) ratio of around 17.8, it seems to offer a narrower margin of safety than many of its industry peers. While this does not necessarily mean that further upside is limited, it does suggest that a share price of 300p may not be achievable in the current year. That’s not especially surprising, since the stock has performed well so far this year.

Of course, the company continues to seek higher levels of production in order to provide a more stable balance sheet. This could help it to warrant a higher valuation over the medium term, while exploration potential could cause investor sentiment to improve. As such, it could perform well in the long run, but with earnings due to decline over the next two years, its near-term upside potential may be relatively limited.

Solid growth?

Also seeming to offer a relatively narrow margin of safety at the present time is steam and industrial fluid control solutions specialist Spirax-Sarco (LSE: SPX). The company released a positive trading update on Tuesday, with it on track to meet its expectations for the full year. It continues to have good diversification across market sectors and geographic regions and it is in the process of implementing its growth strategy.

In the last five years the company has delivered positive net profit growth in each year. Further growth is expected in the next two years, and this consistent performance could appeal to some investors – especially if volatility returns to the wider stock market.

However, with Spirax-Sarco trading on a P/E ratio of 28, it now seems to be relatively overvalued. That’s especially the case since it is due to post a rise in earnings of 9% this year and 6% next year. As such, it may be a stock to avoid after its 17% gain in the last year.

The post Can the Tullow Oil share price reach 300p in 2018? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any of the shares 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.

Today I’m looking at two highly-rated engineering stocks whose recent performance suggests they could continue to climb. Stocks like these can be ideal choices for your ISA as future capital gains and dividends will be tax-free.

Steaming gains

Shares of FTSE 250 group Spirax-Sarco Engineering (LSE: SPX) rose by 3% this morning after the company said that its adjusted pre-tax profit rose by 29% to £229.1m in 2017.

This 130-year old firm produces industrial steam systems and a variety of other specialist products. Sales rose by 32% to £998.7m last year, thanks to a mix of organic growth, acquisitions and favourable exchange rate movements. Shareholders will receive a total dividend of 87.5p, an inflation-beating 15% increase on 2016.

Why I’d buy

Today’s figures show that the firm’s underlying trading margin rose by 0.9% to 24.7% last year, while its adjusted return on capital employed rose from 47.9% to 52.9%. These high figures drive the group’s strong cash generation. They mean that it’s able to expand continuously without needing much debt.

Such high profit margins also suggest to me that the firm’s products have a competitive advantage, perhaps because their specialist nature means that competition is limited.

The shares do look expensive, with a 2018 forecast P/E of 25 and a dividend yield of just 1.6%. But analysts expect earnings to rise by 11% this year. I believe it would be premature to call the top on this stock just yet.

I sold too soon

I invested in reinforced polymer engineering group Fenner (LSE: FENR) just before the mining slump hit rock bottom. This company produces heavy duty conveyor belts for mines and a variety of polymer products for the oil, gas and medical sectors.

My shares performed well during the first part of the mining sector recovery, but I sold for a modest profit much too soon. Had I held on, I’d now be sitting on a 120% profit at current prices.

My mistake was selling when the shares started to look expensive. I focused too much on past performance, not on the potential success of the group’s turnaround strategy. This has been impressive.

Strong momentum

The group’s operating margin reached 8.1% last year, but it’s been above 10% in the past. I suspect this year will see another increase.

January’s trading update revealed that results for the year to 31 August are expected to be ahead of forecasts. Analysts now expect the firm to report adjusted earnings of 22.2p per share this year, a 25% increase from last year. Fenner’s dividend is expected to rise by 20% to 5p.

The group’s earnings should rise by a further 20% in 2018/19, giving the stock a price/earnings growth ratio of 1.2. That still looks affordable to me, despite the P/E ratio of 21.

Fenner would be my pick of the two shares I’ve looked at today. I’d continue to hold and would consider buying more.

The post 2 inflation-busting dividend growth stocks I might buy for my ISA appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any of the shares 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.

However, patience in underperforming shares can be significantly rewarded in the long run. One stock which could be a prime example of this is Sirius Minerals (LSE: SXX). The mining company has disappointed in recent months and is down almost 10% in the last six months. However, in the long run the company could deliver high returns.

Slow and steady progress

This year has seen Sirius Minerals make rather ‘slow and steady’ progress. Its operations have moved forward as anticipated, with the company’s Woodsmith Mine developing as expected. There have been offtake agreements signed as the business builds up its marketing capabilities ahead of first production in just under four years’ time. And with crop studies showing that the company’s polyhalite fertiliser could potentially perform better than other options, the Sirius outlook has remained positive throughout the year.

Risks

However, market sentiment has been downbeat of late and it seems that some investors are still unsure about the level of risk the company faces. For example, the project is still in its early days, and there are various risks which could lead to higher costs and/or delays to the first production start date. Furthermore, there is a lack of certainty on the company’s future success at marketing the product, nor is there complete clarity on pricing.

Returns

Despite these risks, Sirius Minerals seems to have high return potential. Further offtake agreements could be signed over the next few years which could help to build investor confidence in its outlook. Progress on further financing initiatives may also help to generate improving investor sentiment. And if the company’s project can remain on track, its forecasts for production volumes and profitability in future years may seem to be more realistic. This could lead to a higher share price in the long run, which is why the company could be worth holding for a sustained period of time.

Overvalued

While Sirius Minerals may look cheap after its recent share price fall, one stock which appears to be expensive is Spirax-Sarco (LSE: SPX). The industrial engineering company reported on Tuesday that the global macro-economic environment remains positive and that its sales growth in the four months to October increased modestly compared to the first half of the year. It expects industrial production growth rates to remain positive for the rest of the year and is on track to meet guidance for the full year.

Clearly, the update from Spirax-Sarco is generally positive. However, the company’s valuation suggests that it may be a stock to avoid at the present time. It is forecast to post a rise in its bottom line of 12% next year, but due to a price-to-earnings (P/E) ratio of 27 it seems to be relatively overpriced right now. As such, there may be better value elsewhere for long-term, patient investors.

The post Why Sirius Minerals plc is a growth bargain I’d buy and hold for 25 years appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens owns shares in 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.

Diversity

The answer is a resounding yes, and there is a global demand for it too. Despite the name, Spirax-Sarco Engineering comprises two world-leading engineering businesses: Spirax Sarco for steam and electrical thermal energy solutions, and Watson-Marlow for niche peristaltic pumps and associated fluid path technologies.

The Cheltenham-based group serves a wide range of industries, and benefits from a great diversity of end markets and customers. I see this as one of the core strengths of the business as it insulates it from much seasonal and cyclical demand. For example, in 2016 the company’s largest industry segment, food, accounted for no more than 16% of sales and no single customer in any industry accounted for sales of greater than 1% of the group total.

Excellent balance

Spirax also has an excellent balance between higher-growth end markets and those that are less cyclical and more defensive in nature. Last year, around 50% of total revenues were derived from these defensive end markets, including food & beverage, pharmaceutical & biotechnology, healthcare, chemicals, buildings (heating, ventilation and air conditioning), water & wastewater, and power generation. The remaining 50% being derived from maintenance and repair sales, supported by end users’ operational expenditure budgets.

Spirax has performed exceptionally well over the years through consistently rising earnings as well as an enviable 49-year record of dividend growth. Our friends in the City are expecting this to continue with an anticipated 21% rise in earnings for the current year to December, followed by a further 12% improvement in 2018.

But I’m getting increasingly concerned about the valuation. The share price has advanced 25% over the last 12 months, recording new highs earlier in the year, and leaving the shares trading on a high earnings multiple of 27 for 2017. I’ve no doubt the business will continue to grow, but now is not the best time to buy the shares, in my opinion.

Strong financial position

Another mid-cap firm that I believe is beginning to look rather expensive is Renishaw (LSE: RSW). The Gloucestershire-based group is one of the world’s leading engineering and scientific technology companies, with expertise in precision measurement and healthcare.

Full-year results revealed record levels of revenue of £536.8m, with adjusted pre-tax profits of £109.1m, representing a 25% increase year-on-year. The group is in a strong financial position and continues to invest in the development of new products and applications, along with targeted investment in production and sales & marketing facilities around the world.

Again, I’m increasingly concerned about the business’s valuation. The shares have continued to surge ahead this year, soaring 70% since January, leaving them trading on a lofty P/E rating of 32.

The post Are these FTSE 250 growth stocks getting too expensive? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw. 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.