Buy the dip: 1 top FTSE stock

The sell-off in FTSE shares intensified last week as banks collapsed. This is understandable, as there is uncertainty about what will happen next. Many investors choose to sell first and ask questions later.

However, every stock market storm in history eventually dissipates. And I’m sure this one too, although no one knows when.

In the meantime, I’m going to buy a dip in this FTSE 100 Stock, which has fallen 18% in less than three weeks.

Ashtead (LSE: AHT) leases construction equipment in the UK and North America. It’s everything from diggers and cranes to hard hats and scaffolding. Indeed, the breadth of the product offering can continue to grow despite the pandemic.

The company, trading under the name Sunbelt Rentals, eventually won around 80% of the contract issued by the Department of Health to set up a Covid testing center in the UK. Their scale and expertise (and the sheer number of traffic cones and barriers they have) is priceless.

About 80% of the company’s revenue now comes from the US. In fact, it is the second largest plant leasing group in North America.

But the overall industry in the US remains highly fragmented, with two major companies commanding only about a quarter of the market between them. That leaves plenty of room for Ashtead to continue to gain market share through organic growth and acquisitions.

Pick up the guide

Ashtead recently released a trading update. For the nine months to 31 January 2023, the company reported $7.2bn in revenue. This is a 25% increase over the same period last year and ahead of our own expectations.

Pre-tax profit rose 33% and adjusted earnings per share rose 30%.

However, management said capital spending for the full year would be $3.5bn to $3.7bn, ahead of its previous guidance. And hopefully, the plan will spend $4.4bn next year.

Most of this will be in the US business, and more than analysts anticipated.

So why are these companies increasing their spending on the pool?

One word: legislation.

Mega-project

New legislation passed in the US should directly benefit Ashtead in the coming years. First, the massive $1.2trn infrastructure bill will fund the rebuilding of damaged roads, bridges, railways and airports.

Then there’s the $370bn Inflation Reduction Act, which offers clean energy incentives to companies in the US. And finally, there’s the $52bn CHIPS Act targeting semiconductor production.

These mega projects are expected to increase the overall demand in the plant rental market. And this explains why the company is investing heavily in new rental equipment to serve the demand. I think this is a smart long-term move by management.

That said, this strategy is not without risk. There is still a distinct possibility that the US economy could enter a recession this year. This will have an impact on the entire construction industry and can lead to the growth of the company.

However, I think investors can be happy with the reasonable stock price. The price-to-earnings ratio (P/E) is 16.6.

I believe the decline in stock prices presents a buying opportunity. And I’m going to grab it myself soon.