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Best shares to buy now: Here’s my top FTSE 100 pick

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With the stock market having a bit of a tumble, I’m on the prowl for the best shares to buy now. And last week, I stumbled upon one FTSE 100 business that I thought hit the mark. So much so that I actually added some shares to my income portfolio.

The company is Howden Joinery (LSE:HWDN). It’s a designer and supplier of fitted kitchens, selling the necessary materials to tradesmen across the United Kingdom and France.

Given we’re in the middle of a consumer spending slowdown, investing in what amounts to a home renovation business may seem nonsensical. So let’s explore exactly why I think now is the best time to buy, despite the seemingly unfavourable environment.

One of the best shares to buy now?

The business generates revenue by offerings its kitchens to new home builders. However, the majority of top-line income actually originates from households seeking to renovate.

When inflation is going through the roof I, like many, assumed that this sort of business wouldn’t fare too well. After all, fitting a new kitchen is expensive, and with energy bills going through the roof, most households are looking to cut costs wherever possible. And that’s probably why the FTSE 100 stock is down 41% in the last 12 months.

However, it seems someone forgot to tell Howden Joinery because its latest results continue to deliver record-breaking performance. In the last six months, revenue hit a new mid-year high of £913.1m, up 16.3% versus a year ago and 39.9% compared to pre-pandemic levels.

Inflation has been driving up the cost of raw materials. Yet management has had little difficulty passing this cost onto customers to the point that profit margins are actually improving. Subsequently, operating profits came 20% higher than in 2021, which led to a 9.3% raise in its dividend.

The group opened 10 new depots while revamping 34 older ones here in the UK. It also continued its international expansion into France with seven new depots. In total, Howden now has 788 sites serving approximately 20% of the UK’s estimated £11bn kitchen materials market.

Knowing the risks

I think Howden Joinery may be one of the best shares to buy now. But that doesn’t make it a risk-free investment. The group has proven to be resilient against macroeconomic factors so far. But suppose households continue to face spending pressure due to rising living costs or a potential recession. In that case, home renovation projects may start getting delayed.

Another threat to consider is supply chain disruptions. Howden Joinery is a vertically integrated business. But it still has to source the raw materials needed to manufacture the components it sells to tradesmen. Its customers tend to operate on a short cycle, so any unavailability in inventory can result in lost projects.

But given the group’s long track record of outperformance, management defying short-term expectations, and a valuation that looks dirt-cheap at a P/E ratio of 10, I believe the potential rewards far outweigh the risks. And that’s why I’m now a shareholder.

The post Best shares to buy now: Here’s my top FTSE 100 pick appeared first on The Motley Fool UK.

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Zaven Boyrazian has positions in Howden Joinery Group. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.