I’m a huge fan of buying shares at knock-down prices. So I’m delighted that there are plenty on the FTSE 100 for me to choose from today.
Here are two beautiful bargains on my radar following a difficult end to 2023. I’ve already bought them for my portfolio, and I’m looking to add more when I have spare cash to invest.
Ashtead Group
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Rental equipment business Ashtead Group (LSE:AHT) has been one of the best-performing UK shares this century.
Since 2004 it has delivered a staggering return of 35,219%, according to Hargreaves Lansdown. This puts it clear at the top of the Footsie leaderboard.
This is thanks to Ashtead’s successful expansion strategy that has turbocharged revenues. Ashtead has doubled its US market share over the past decade, to 13%, on the back of a steady flow of acquisitions. It has also grown the number of stores in its portfolio to almost 1,100, from 358 a decade ago.
Yet the rental market in its core US marketplace remains highly fragmented. Companies outside of the industry’s 10 largest control a whopping 58% of the market, Ashtead estimates. This excites me as an investor as it gives the firm plenty of scope for further profits-boosting acquisitions.
On the downside, its net debt’s rising. It increased to $10.6bn as of October from $8.4bn a year earlier, and further growth could in theory hamper acquisitions activity and dividend growth.
However, net debt to EBITDA still remains at 1.8 times, inside the firm’s target range of 1.5-2 times.
It’s worth keeping a close eye on Ashtead’s balance sheet in the coming months. But as of today I still consider the company to be a brilliant buy, and especially at current prices.
Today, it trades on a price-to-earnings growth (PEG) ratio of 0.9 for the upcoming financial year (ending April 2025). Any reading below 1 indicates a share is undervalued.
Diageo
Drinks giant Diageo (LSE:DGE) is another share I bought for my portfolio in 2023. And its relative cheapness is giving me a thirst to increase my holdings.
The Captain Morgan and Guinness manufacturer doesn’t look cheap by conventional metrics, unlike Ashtead. But its current forward price-to-earnings (P/E) ratio of 18.4 times sits well below its historical average in the mid-to-high 20s.
Diageo has experienced trouble of late and pressure on consumer spending has hit its revenues. Trading has been especially tough in its Latin America and Caribbean region, resulting in the company announcing a shock profit warning in November.
No stock is immune from revenues turbulence, but problems at Diageo are pretty rare. So I believe the market’s overreaction to difficult trading last year (and the subsequent fall in Diageo’s share price) represents an excellent buying opportunity.
The FTSE firm has a great track record of using its market-leading brands to drive long-term growth. This has been helped by its history of innovation and successful expansion in fast-growing segments (like premium and non-alcoholic drinks).
These qualities remain intact, as does its huge exposure to fast-growing emerging markets. Mordor Intelligence analysts expect spirits sales in Asia Pacific to rise at an annualised rate of 5.49% through to 2029. This gives the company more considerable scope to grow sales.
Like Ashtead, I believe Diageo will recover and deliver strong returns over the next decade.
