Finding the best growth stocks is rarely a straightforward endeavour. Certainly, there are specific sectors which usually offer stocks able to generate above-average growth – for example the technology sector. However, looking in other industries can prove to be worthwhile, since they may offer high growth at a more reasonable price.
With that in mind, here are two stocks which may be viewed as relatively defensive by some investors. However, they could deliver stunning growth over a sustained period.
Robust outlook
Reporting on Thursday was Dechra Pharmaceuticals (LSE: DPH). The company’s year-end trading update was in line with expectations, with a good performance from its core business. This was complemented by the successful integration and performance of acquisitions. Revenue for the year was 28% higher at constant exchange rates. This was driven by a 93% rise in North America Pharmaceuticals growth, while in Europe growth was more subdued at 7%.
During the year, the company has achieved numerous product registrations. They have included approval by the FDA for the first major product from the Putney pipeline following its acquisition. The Putney products have benefitted from the integration of the sales and marketing efforts following acquisitions. This was a key reason behind the company’s North American revenue growth.
Looking ahead, Dechra is expected to increase its bottom line by 16% in the current year. This is around twice the growth rate of the wider index, and yet the company’s shares continue to offer a wide margin of safety. They trade on a price-to-earnings growth (PEG) ratio of just 1.5, which suggests that there is upside potential on offer.
As well as this, the business could be viewed as defensive due to its low positive correlation with the wider index and economy. Therefore, given the uncertainty present in the global economy, Dechra could prove to be a sound buy.
Improving performance
Also offering investment appeal within the healthcare sector is Eco Animal Health (LSE: EAH). The company is forecast to record a rise in its bottom line of 21% in the current year. This puts its shares on a PEG ratio of only 1.5, which suggests that they could deliver further gains even after they have risen by 37% in the last year.
As well as its upside potential, Eco is also becoming a more attractive dividend share. In the last four years it has increased dividends by 78%. Over the next two years it is forecast to raise them by a further 29%. This puts the company on a forward dividend yield of 1.5%, but with dividends covered 2.4 times by profit there could be additional inflation-beating growth on offer in the long run.
As with other healthcare companies, Eco could offer diversity for a Foolish portfolio. Its lack of cyclicality and global exposure suggest that its shares could continue to perform well even if the UK economy experiences a difficult period.
