It isn’t too late to buy these FTSE 100 rockets

These two FTSE 100 (INDEXFTSE: UKX) stars still have plenty of fuel in the tank, says Harvey Jones.

| 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.

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.

The following two FTSE 100 stocks started 2017 with a bang but can they maintain recent stellar growth?

Flying high

British Airways owner International Consolidated Airlines Group (LSE: IAG) has been a real high-flyer rising 20% in the first three months, recovering much of last year’s share price losses in the immediate aftermath of the Brexit shock. The world hasn’t lost its love of flying, even after the UK’s snub to the EU.

The company is also expanding into the budget arena, with its new low-cost long-haul airline brand Level due to start operating in June 2017, with regular commercial flights in June from Barcelona to Los Angeles, San Francisco, Buenos Aires and the Dominican Republic. However, air traffic growth has slowed lately. Revenue passenger kilometres increased by 2.6% in the year to March but this was down from 4.4% in January, although annual group premium traffic held firm at 6.9%.

Earthly matters

IAG has also been helped by lower fuel prices and although Brent crude has climbed above $55 in recent days, global supply remains high and further upside may be limited. The downside is that cheaper fuel has kept many rival airlines flying so the industry has been hit with overcapacity, reducing prices. This is less of a problem with IAG’s premium brands British Airways and Iberian, which aren’t competing directly with the budget operators.

However, its transatlantic operations face a price war with the Norwegian Air Shuttle and other new entrants, and there are concerns about a dip in US corporate travel demand. Recent acceleration may slacken with earnings per share (EPS) forecast to fall 7% this year, which could prove a comedown of three years of growth in the high double-digits. However, EPS are due to rebound 7% in 2018. Also, a yield of 3.8% covered four times is tempting and trading at just 6.45 times earnings, there is still time to hop on board.

Tec bubble

Global medical products and technologies company ConvaTec Group (LSE: CTEC) also jumped around 20% in Q1, helped by positive 2016 of results. Adjusted EBITDA jumped 7.1% to $508m, while adjusted operating profit climbed 8.1% to $472m. The medical technology company, which only launched in October 2016, has a strong pipeline of innovative new products aimed at helping the growing number of people living with chronic conditions.

This year’s new product launches include a care recovery programme for stoma patients, new catheter and ostomy care products, skin protecting incontinence wipes and ‘Foam Lite’ dressing products. The £5.59bn group is also growing through acquisitions, recently buying Dutch surgical appliance manufacturer EuroTec Beheer for €25m in order to strengthen its position in the France and Benelux markets. It posted group revenue growth of 4% at constant currency rates.

Carry on climbing

ConvaTec looks pricey at 26.65 times earnings, although dramatic forecast EPS growth of 47% for 2017 should bring that back to earth, with a further 10% EPS growth pencilled-in for 2018. There is no dividend as yet, but by the end of next year City analysts expect the stock to yield 2.2%. This is an expanding, energetic, innovating company that may also have further to fly.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

2 top growth stocks to consider for an ISA in April

The UK market is home to some fantastic under-the-radar growth stocks trading at very reasonable valuations. Here are two of…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could thinking like Warren Buffett help create a market-beating ISA?

Christopher Ruane zooms in on some aspects of Warren Buffett's investing approach he thinks could help an ambitious ISA investor…

Read more »

British pound data
Investing Articles

£10,000 invested in a FTSE 100 index tracker at the start of March is now worth…

Anyone who invested money in a FTSE 100 index tracker at the start of the month may wish to look…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Should investors consider Rolls-Royce shares as war rocks global markets?

Investors who thought Rolls-Royce shares had grown too expensive might have second thoughts as Iran turmoil rattles the FTSE 100,…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

Some lucky ISA investors could pick up £2,000 for free in the next month. Here’s how

The UK government is handing out free money to some ISA investors to help them save for retirement. Here’s a…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

Is this the best time to buy dividend shares since Covid-19?

A volatile stock market gives investors a chance to buy shares with unusually high dividend yields. Stephen Wright highlights one…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Are we staring at a once-in-a-decade chance to buy this beaten-down UK growth stock?

Investors couldn't get enough of this FTSE 100 growth stock, but the last 10 years have been pretty frustrating. Could…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

What I look for when searching for shares to buy

There’s a lot that goes into finding shares to buy. Ultimately though, it comes down to two things: numbers that…

Read more »