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Last month I parted ways with a well-known FTSE 100 stock. There isn’t anything particularly wrong with the company, which I continue to rate highly.
However, there is competition for places in my portfolio right now, and I’m going to use the cash to invest in what I consider to be superior growth and income opportunities.
Here, I’ll explain why I sold this Footsie share and what stocks I’m going to buy.
The FTSE 100 stock in question
In August, I offloaded my Rightmove (LSE: RMV) shares. I did so with a heavy heart, as there is nothing intrinsically wrong with the property platform. Indeed, quite the opposite, as it has seen off competition from various upstarts to command an 84% share of the UK online property portal market.
However, revenue and earnings growth have both now settled into the mid-to-high single digits. I had hoped the firm would expand overseas with acquisitions and pursue various other avenues of growth.
It has opted not to do so, at least not in the way I expected. There’s nothing wrong with that, of course, but the stock trades on a price-to-earnings (P/E) ratio of 22. This premium valuation reflects its very stable earnings, but I want a bit more growth for that sort of multiple.
Plus, the dividend yield is a paltry 1.57%. Again, not good enough, I feel. My eyes have been wandering towards those FTSE 100 stocks carrying yields in the 5%-9% range.
Overall then, I’d say Rightmove is a great business, but not growing fast enough or paying out high enough dividends to justify keeping the stock in my portfolio.
Chasing higher growth
Half of the cash I freed up from my sale is going towards shares of Ashtead Technology (LSE: AT.). This is a leading subsea rentals and services group that just released an excellent H1 report.
Its offshore renewables revenue jumped by 74.1% to £16.3m, while offshore oil and gas revenue rose by 50.0% to £33.5m. Better still, gross profit surged almost 69% to £39.3m, prompting management to upgrade its full-year profit guidance.
Now, the risk here is that the shares have surged 67% in 12 months. So investor enthusiasm could change if growth slows dramatically.
That said, I don’t expect this due to its substantial opportunity to provide services and equipment to the global offshore wind energy market.
Also, earnings per share upgrades imply the shares are trading on a P/E ratio of 14. So I don’t think the stock is overbought.
Chasing higher income
Finally, with my remaining money, I’m going to double down on my Legal & General (LSE: LGEN) holding. Or is it triple or quadruple down? I’ve lost count given the number of times I’ve bought shares in the life insurance and asset management giant in recent months.
Anyway, my reason is that L&G is a high-quality business whose stock carries a mouth-watering 9% yield. And unlike Rightmove, the shares are cheap, offering better all-round value.
Once concern is that total assets under management (AUM) shrank by 10% (or £132bn) in its latest H1. Yet the company’s AUM does fluctuate with market movements.
The payout is backed up by solid cash generation and its retirement products should remain in high demand as the global population ages.
