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)

| 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.

sdf

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.

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.

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.

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.

More on Investing Articles

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price is close to an all-time record. Could it still be a bargain?

The Rolls-Royce share price has been punching out the lights of late. Our writer thinks things could get even better…

Read more »

4 Teslas in a parking lot at a charger station
Investing Articles

The Tesla share price slips further — how much would £10k invested at the start of the year be worth now?

The Tesla share price remains under pressure, with risks mounting from multiple directions. Here’s what a £10,000 investment would be…

Read more »

British pound data
Investing Articles

The Ocado share price is a sea of red! Time to cut my losses?

Every time Harvey Jones checks out the Ocado share price, he sees red. Will it ever stop falling and leaving…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

Over the next 5 years, I think these S&P 500 stocks will make me more money than a global index fund can

Edward Sheldon believes that these two high-quality S&P 500 growth stocks have the potential to beat the market over the…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Over the last 2 years, this investment trust has doubled the FTSE 100 index’s return

Here are three key reasons why our writer reckons this high-quality investment trust from the FTSE 100 index is worth…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Keep an eye on this FTSE 100 stock in the week ahead

The last time Bunzl issued a trading update, the stock fell 25%. So could the FTSE 100 stock be set…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

This FTSE 100 bank is up 60% in year but still cheap with a P/E of just 9!

Harvey Jones has overlooked this FTSE 100 bank, until today. It's been bombing along yet still looks decent value. But…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

Stocks and Shares ISA in the red? Here’s how to try and get back on track

Despite upward momentum in the stock market, not every Stocks and Shares ISA’s in the black. Zaven Boyrazian explores strategies…

Read more »