I got my timing just right when I bought FTSE 100 flier Rolls-Royce (LSE: RR) shares on 1 November last year. They’re up 125% since then and I can’t help smiling every time I check them out.
Yet my pleasure is tinged with pain. I thought it was a risky buy and only invested a tiny sum. Over one year, the shares are up 70%.
I’ve been wondering whether to expand my stake, but after the stock jumped more than 20% following Wednesday’s bumper first-half results, I decided the moment had passed. I risked wiping out all of my modest gains if my bigger bet backfired.
I can’t be alone in wondering whether it’s too late to buy into the Rolls-Royce recovery. Typically, the biggest gains are usually made early doors. New CEO Tufan Erginbilgic’s multi-year transformation programme has got off to a brilliant start as profits and cash generation soar. However, today’s upbeat expectations look priced into its sky-high valuation of 78.28 times earnings.
I’m no high roller, sadly
Now I’m wondering whether it’s finally time to buy equipment rental firm Ashtead Group (LSE: AHT) instead. This is the very best performing FTSE 100 stock over the last five years, growing 141.35% over that time.
This isn’t a one off. It’s the best performer over the last 20 years too, during which times it delivered a staggering total return of 41,408%. That turned £5k into a scarcely believable £2.28m. Over the last year, it’s up a solid 34.56%.
Ashtead generates 80% of its revenues from US subsidiary Sunbelt Rentals where growth has been driven by the Biden administration’s $1trn US infrastructure splurge. This has caused supply shortages in base equipment such as diggers, cranes and drills, so businesses have been renting them from Ashtead instead.
The share price just keeps growing yet trades at a less-than-demanding 18.18 times earnings. The worry is that the US will fall into recession, hitting demand just after Ashtead invests in a load of new kit. I can’t keep putting off this purchase though. It’s a lot cheaper than Rolls-Royce, and doesn’t come with any of the recent baggage.
I’ve got an eye on this one, too
FTSE 100-listed investment company 3i Group (LSE: iii) is another growth stock I meant to buy yonks ago but decided was too expensive. Like Ashtead, it’s kept growing and growing. In fact, 3i is the second best performer on the FTSE 100 over five years, up 107.48%. Over 12 months, it’s up another 60.07%. This is another growth stock that keeps giving.
3i gives shareholders quoted access to private equity and infrastructure and while that sounds risky, two things offer me comfort. First, its consistent performance. Second, it’s built up a wealth of experience having been operating since 1945.
These should be tough times for private equity, as interest rates rise and inflation discounts the value of future earnings. Yet 3i keeps powering on. Only one thing worries me. It’s expensive, trading at a premium of 9.21% to the underlying value of its assets.
I could wait for it to become cheaper, but I said that five years ago and have been kicking myself ever since. I’ll call it reassuringly expensive and buy in August. Then I’ll take another look at those Rolls-Royce shares.
This post was originally published on Motley Fool
