In the last year, the FTSE 100 has outperformed the FTSE 250 by around 8%. Much of this is because of the former’s focus on international companies. They have generally benefitted from rising valuations as sterling has weakened, while many mid-cap shares are more UK-focused. Since Brexit means economic uncertainty, it is unsurprising that large-cap shares have outperformed their smaller peers.
This means there may be bargains on offer within the FTSE 250. Here are two growth stocks which may not remain at relatively cheap prices indefinitely.
Healthcare potential
Demand for healthcare products and services is likely to rise rapidly in future years. The world’s population is not only increasing, it is also ageing. Therefore, investor sentiment towards the healthcare sector could improve over the long run. And since it is generally less positively correlated to the wider economy than most sectors, it could also provide a degree of stability and diversification in case the outlook for the global economy deteriorates.
Within the healthcare sector, interventional medicine specialist BTG (LSE: BTG) could deliver high returns. It is forecast to record a rise in its bottom line of 49% next year, followed by growth of 15% in the following year. Despite this, it trades on a price-to-earnings (P/E) ratio of 27, which puts it on a price-to-earnings growth (PEG) ratio of just 0.8. This indicates that it offers a sufficiently wide margin of safety to merit investment at the present time.
Certainly, BTG’s income appeal is non-existent right now, since it pays no dividend. However, as the company matures it is likely to begin to pay out a proportion of profit to shareholders. This could act as an additional catalyst on its shares and signal confidence in its long-term outlook.
Property potential
Rises in tuition fees do not appear to have reduced demand for university places. In 2015, it reached its highest recorded figure in history, with 532,300 people entering higher education in the UK. Given the pressure on housing in the general UK population, it is unsurprising that the provision of student accommodation has proved to be a profitable endeavour for companies such as Unite Group (LSE: UTG).
It has recorded double-digit growth in each of the last five years. Not only does this mark it out as an impressive growth play, it also signals that the company offers defensive characteristics. They could prove useful if Brexit equates to even greater uncertainty among investors.
Looking ahead, Unite is expected to record a rise in its bottom line of 9% this year and 16% next year. Its shares may trade on a P/E ratio of 20.7, but their PEG ratio of just 1.7 indicates that they offer good value when their relatively low risk profile is taken into account. Furthermore, Unite currently yields 3.5% from a dividend which is covered 1.4 times by profit. Therefore, as well as being an attractive growth stock, it continues to offer above-average income prospects.
