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While looking for the best stocks to buy, FTSE 100 Index-list Croda International (LSE: CRDA) and Spirax Group (LSE:SPX) have rarely figured in my calculations.
Looking at their share price performance, I am not at all surprised. Anyone who has bought these overlooked stocks in recent years probably wishes they had never heard of them.
I am a big believer in buying stocks when they have fallen out of favor. This allows me to buy them at a reduced valuation, possibly with a higher yield, and benefit when the market cycle turns back in their favor, assuming that it does.
Croda fights
Croda's share price is down 26.92% in one year and 56.85% in five. I thought the stock would be very cheap as a result, but that's not the case. It's actually trading at 23.32 times earnings, well above the FTSE 100's current average of around 15 times. Its yield of 2.8% is below the index average of 3.8%.
The chemical maker does have one thing going for it, though: It has increased shareholder payouts for 32 consecutive years, making it a true dividend aristocrat.
Sales soared during the pandemic as customers stocked up on chemicals, but were then hit by “prolonged shortage”Croda delivered more bad news on July 30 as its life sciences operations suffered continued stock-outs, particularly in crop protection and consumer health.
First-half pre-tax profit fell 27% to £127.3m, while sales fell 7.4% to £815.9m. The board also cut its full-year profit forecast.
I recently took advantage of several profit warnings to buy FTSE 100 stocks at discounted valuations, only to see them plummet further. I fear that could happen here too. Given the valuation, I am in no rush to buy Croda today.
Spirax on the rack
Spirax, a manufacturer of industrial and commercial steam system products, is another dividend aristocrat, having increased shareholder payouts for 33 years. I wish Spirax's share price had shown similar momentum. It's down 25.27% in one year and 51.68% in five.
However, it is another underperforming company, paying a trailing profit of just 2.11%. Like Croda, Spirax is not cheap, trading at 24.26 times earnings. That reflects a sharp 17% drop in earnings per share in 2023, to 312.4p. Pre-tax profits fell 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 “weak macroeconomic environment” in key markets and currency issues.
Chief Executive Nimesh Patel expects stronger growth in the second half, but does not “We anticipate a significant recovery by the end of 2024”.
Both stocks have a strikingly similar profile. Their shares have plummeted, but they aren't cheap; their dividend history is stellar, but yields are low; neither is a bargain, and their troubles aren't over.
Both need the US and Chinese economies to regain their vitality, but there are few signs of that happening today. I see several FTSE 100 stocks with much brighter prospects and higher yields. Instead, I'll be looking to buy them.
