2 struggling growth stocks set to beat the FTSE 100

These two growth shares could reverse their poor starts to 2017 and beat the FTSE 100 (INDEXFTSE:UKX)

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While the FTSE 100 has enjoyed a relatively prosperous start to 2017, a number of shares have delivered negative returns. In some cases, this is company-specific. However, in others it is linked to concerns surrounding the global economic growth outlook. Here are two stocks for whom the performance of the world economy matters a great deal due to their cyclical status. While they may have declined in value in 2017, now could be a buying opportunity.

Bright future

Reporting on Thursday was global PR and advertising company WPP (LSE: WPP). Its shares fell around 2% following the release, with the company reaffirming target sales growth of just 2% for the full year. Much of this growth will be weighted towards the second half of the year due to weak comparatives.

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Despite the company’s share price fall, its overall performance was relatively upbeat. Revenue growth of 16.9% was somewhat flattering, though, since 13.3% growth was from currency fluctuations and 3.4% was from acquisitions. As such, organic growth remains relatively low, which indicates that the global economy continues to face a somewhat challenging period.

Of course, WPP’s business model has always been focused on acquisitions and Thursday’s update did little to change this fact. Looking ahead, its earnings are due to rise by 9% this year and by a further 7% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.9, which given its dominant position within its industry seems to be a fair price to pay. As a result, following its share price decline of 7% since the start of the year, WPP could deliver FTSE 100-beating performance in the long run.

Growth and income potential

Also highly dependent on the performance of the global economy is fellow advertising and PR specialist M&C Saatchi (LSE: SAA). As with WPP, its shares have declined this year and have underperformed the FTSE 100 by around 8%. However, with earnings growth of 8-9% per annum forecast for the next two years, this situation could easily be reversed.

The chances of outperformance of the wider index are enhanced by M&C Saatchi’s valuation. It trades on a PEG ratio of 1.8, which appears to be relatively low given its track record of growth. Furthermore, it continues to offer a degree of adaptability as well as a nimble business model which few of its larger peers can match. This could provide it with above-average growth in what remains an uncertain global economy.

While M&C Saatchi currently yields just 2.3%, it is forecast to raise dividends per share by over 25% during the next two years. Alongside a dividend payout ratio of just 39%, this indicates that dividend growth may be relatively high over a sustained period. With inflation moving higher, this could improve the company’s income appeal and lead to higher demand from investors for its shares.

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Peter Stephens owns shares of M&C Saatchi. 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.

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