2 cheap growth stocks set to beat the FTSE 100

These two stocks could have sufficient growth potential to surge past the FTSE 100 (INDEXFTSE:UKX).

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Finding shares which can beat the FTSE 100 could be crucial over the medium term. The UK’s main index faces risks such as a general election, Brexit and uncertainty in Europe. Therefore, staying ahead of the FTSE 100 could reduce potential losses, while also offering high prospective returns in the long run. With that in mind, here are two stocks which appear to offer sufficient capital growth potential to beat the wider index.

Improving outlook

Reporting a trading update on Tuesday was integrated healthcare provider in the United Arab Emirates, NMC Health (LSE: NMC). It now expects its full-year EBITDA (earnings before interest, tax, depreciation and amortisation) to be towards the top end of the current guidance range of $335m to $350m. This follows changes to regulations in the UAE, which could be set to benefit the company’s financial performance.

Looking ahead, NMC is expected to report a rise in its bottom line of 27% this year. This is forecast to be followed with growth of 28% next year. This puts the company’s shares on a price-to-earnings growth (PEG) ratio of just 0.7, which indicates they could offer a significant amount of upside potential.

Clearly, NMC lacks the geographic diversity of other healthcare providers. However, since it is not reliant on the UK or European economies for its revenue, it could act as a means of diversifying a UK or European-focused portfolio. And with it offering a wide margin of safety and clear growth potential, it could prove to be a stock that outperforms the FTSE 100. That’s despite its shares already doubling in the last year and leaving the wider index around 83% behind.

Sustainable growth

Also offering upbeat growth prospects in the current year is fresh produce distributor Total Produce (LSE: TOT). It is expected to report a rise in its bottom line of 35% in the current year. Since it trades on a price-to-earnings (P/E) ratio of around 16, this suggests that it offers excellent value for money. In fact, such a high rate of growth equates to a PEG ratio of just under 0.5.

Looking ahead, Total Produce is likely to post relatively robust and highly sustainable growth. In the last five years it has recorded a rising bottom line 80% of the time, with its earnings rising at an annualised rate of over 5% per annum. This suggests that a similar, resilient growth rate could be ahead. Given the uncertainty which the UK and European economies face, this could prove to be a useful ally for risk-averse investors.

While Total Produce may be seen as a stock lacking in a clear catalyst to push its share price higher, its low valuation and sound business model mean that it could be a strong long-term performer. It has delivered a more than doubling of the FTSE 100’s return in the last year and more outperformance could be ahead.

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Peter Stephens 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.

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