While hunting for the best shares to buy, FTSE 100-listed Croda International (LSE: CRDA) and Spirax Group (LSE: SPX) have rarely figured in my calculatoins.
Looking at their share price performanceS, I’m hardly surprised. Anybody who bought these overlooked stocks in recent years probably wished they’d never heard of them.
I’m a big fan of buying shares after they’ve fallen out of favour. This allows me to buy them at a reduced valuation, possibly with a higher yield, and benefit when the market cycle swings back in their favour. Assuming it does.
Croda struggles
The Croda share price is down 26.92% over one year and 56.85% over five. I thought the stock would be dirt cheap as a result, but it isn’t. It actually trades at 23.32 times earnings, well above today’s FTSE 100 average of around 15 times. Its yield of 2.8% is below index average of 3.8%.
The chemicals manufacturer boasts one thing in its favour though. It’s hiked shareholder payouts for 32 years in a row. That makes it a true blue-blooded Dividend Aristocrat.
Sales flew during the pandemic when customers stockpiled chemicals but it was subsequently hit by “prolonged destocking”. Croda delivered more bad news on 30 July, as its life sciences operations suffered continued destocking, notably in crop protection and consumer health.
First-half pre-tax profit fell 27% to £127.3m, with sales down 7.4% to £815.9m. The board also cut its full-year profit outlook,
I’ve taken advantage of several profit warnings recently to buy FTSE 100 shares at reduced valuations, only to see them slump further. I fear that could happen here too. Given the valuation, I’m in no rush to buy Croda today.
Spirax on the rack
Industrial and commercial steam system products manufacturer Spirax is another Dividend Aristocrat, having hiked shareholder payouts for 33 years. If only the Spirax share price had shown similar vim. It’s down 25.27% over one year and 51.68% over five.
Yet it’s another low-yielder, paying trailing income of just 2.11%. Like Croda, Spirax isn’t cheap, trading at 24.26 times earnings. That reflects a sharp 17% drop in 2023 earnings per share to 312.4p. Pre-tax profits dropped 20.6% to £244.5m.
Spirax had a tough start to 2024, with first-half pre-tax profits down 10% and earnings per share down 12%. The board blamed a “weak macroeconomic environment” in key markets and currency issues.
Chief executive Nimesh Patel expects stronger second-half growth but does not “anticipate a meaningful recovery until late 2024”.
Both these stocks have a surprisingly similar profile. Their shares have plunged but they’re not cheap, their dividend track record is stellar but the yields are low, neither are bargains and their struggles aren’t over.
Both need the US and Chinese economies to spring back into life, but there’s little sign of that today. I can see a number of FTSE 100 shares with far brighter prospects, and higher yields too. I’ll look to buy them instead.
This post was originally published on Motley Fool
