2 FTSE 100 growth goliaths I’d buy before it’s too late

These two FTSE 100 (INDEXFTSE:UKX) firms could be growth stars for years to come, says G A Chester.

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Hargreaves Lansdown (LSE: HL) released a trading update this morning. The shares were down 4% at under 1,300p in the first hour of trading — taking the decline since Monday to over 10% — but they’ve recovered a bit of ground this afternoon.

I’ll come to the reason for the current weakness shortly. But let me say at the outset that I believe this week’s drop represents an opportunity to buy into one of the top long-term growth stories in the FTSE 100.

Number one destination

HL today reported it gained 56,000 new clients in the four months to 30 April, taking the number of active clients to 932,000. Net new business of £3.3bn and market gains of £3.7bn saw assets under administration increase 10% to £77bn.

The company said a number of factors contributed to the strong performance, including a recovery in investor confidence ahead of the end of the tax year and the launch of Neil Woodford’s Income Focus Fund.

HL is the UK’s leading retail savings and investments platform, which puts it in a strong position to enjoy the long-term tailwind of what is a structural growth story in the UK savings and investments market. For example, major shifts in areas such as pensions are pushing more people to manage their own investments. And I believe market leader HL will continue to be the number one destination for this rising tide of retail money.

No serious threat

The reason for this week’s drop in the shares is the launch of a low-fee platform by US passive fund specialist Vanguard. I don’t see this as a serious threat to HL’s business, because the Vanguard platform only offers in-house products and not the range of actively-managed and passive funds, shares, bonds and tax wrappers that HL offers. One analyst has calculated that if the average HL client moved the passive element of his or her portfolio to Vanguard, they’d save just £7 a year.

Even after this week’s drop in the shares, HL’s 12-month forward price-to-earnings (P/E) ratio is a relatively high 28. However, I reckon the company should be capable of punching mid-teens earnings growth for many years to come. As such, I believe the shares could prove a great buy.

Harnessing digital technology

Relx (LSE: REL) is another FTSE 100 stock where I see a long-term growth opportunity for investors today. At 1,610p, the shares are only a tad below their recent all-time high. Despite this, the 12-month forward P/E of 19 is markedly lower than HL’s 28. On the other hand, I think Relx’s annual earnings growth is likely to be a little less than the mid-teens increases I’ve pencilled-in for HL.

Relx has evolved from a traditional print publisher into a leading information and analytics group, diversified across four market segments: scientific, technical and medical; risk and business analytics; legal; and exhibitions. Digital technology continues to drive the ongoing evolution, expansion and efficiency of the business. Operating margins have been ticking up each year, which, together with increasing revenues, is driving strong earnings growth.

I believe Relx can continue to harness digital technology and maintain its growth trajectory in the coming years. As such, I see this as another very buyable stock for investors seeking long-term capital gains.

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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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