2 terrific growth stocks I’d load up on right now

Royston Wild looks at two stocks with terrific earnings potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Melrose Industries (LSE: MRO) found itself heading backwards in Thursday trade following the release of half-year numbers. The stock was last 4% lower from the mid-week close and dealing at levels not seen since late March.

This is despite the engineering play announcing that it had swung to a pre-tax profit of £47.8m during January-June from a loss of £9.2m in the corresponding 2016 period.

Commenting on the first half performance, chairman Christopher Miller said: “During the first 10 months of our ownership, Nortek has delivered the fastest initial improvement in performance Melrose has ever achieved.  More investment is being made in Nortek to drive further improvements and appropriate actions are being taken in Brush for the long term.”

Nortek, which was snapped up exactly one year ago, has seen the fastest improvement in profit of any acquisition in Melrose’s history, the Birmingham-based engineer noted. Underlying profit here leapt 54% year-on-year, to £145.5m, while an underlying operating margin of 14.7% was up 5.5% in the period.

But performance was more worrying over at Brush, which provides electricity generators to industry and the oil and gas sectors. Melrose noted that the division “is experiencing its toughest market conditions since [we] acquired it in 2008,” adding that “over the summer, it has become clear from market feedback and discussions with customers that the market conditions have worsened further and there is no recovery in generators expected in the foreseeable future.”

Melrose added that “appropriate action is being taken for the long term with all parts of the business being reviewed.”

Earnings expected to rocket

While Melrose is clearly not without its share of difficulties, the City does not expect them to prove a road block to stratospheric earnings growth in the near term and beyond.

In 2017 the company is predicted to record a 113% bottom-line improvement, and an additional 15% advance is anticipated for next year.

A subsequent forward P/E ratio of 22 times may be considered a bit heady for some investors, although a PEG multiple of 0.2 suggests Melrose is actually attractively priced relative to its growth prospects.

Risk-averse investors may point to the escalating troubles at Brush as reason not to invest, a position I would sympathise with. Having said that, I reckon the strength of the rest of Melrose’s other operations give grounds for optimism. And with the company also on the hunt for more bolt-on buys to drive earnings, I am still confident the business could deliver stonking profits growth in the coming years.

Set to soar

Those not wishing to stash the cash in the engineering giant might want to take a look at Ryanair (LSE: RYA) instead.

Just like over at Melrose, the number crunchers are predicting great things at the budget flyer — a 20% earnings advance is forecast for the year ending March 2018. And an extra 14% rise is forecast for the following period.

Such projections leave the Irish airline dealing on a forward P/E ratio of 15.2 times, as well as a PEG readout of just 0.8. I believe this is unmissable value given the brilliant revenues opportunities afforded by the fast-growing, low-cost travel segment, not to mention Ryanair’s ambitious route expansion drive.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of Melrose. 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.

More on Investing Articles

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »