2 growth stocks perfect for retirement

Royston Wild looks at two stock stars that could deliver brilliat long-term earnings growth.

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Investor demand for TT Electronics (LSE: TTG) ripped higher in Wednesday trading after the firm released exciting news on a recent disposal.

The tech titan was last 11% higher after advising that it had hived off its Transportation Sensing and Control (or TS&C) division to US giant AVX Corporation for $118.8m on a cash-free, debt-free basis. The Woking firm advised that it will use the proceeds to cut debt and to fund capital investments and acquisitions to facilitate future growth.

Celebrating the deal, chief executive Richard Tyson commented that “this is an important step for TT. Having returned the TS&C Division to growth and profitability faster than expected, we believe it will be better positioned to achieve its full potential under the ownership of AVX.

Following the disposal, TT will be a higher margin, higher quality business, with an improved geographic and market balance.” Tyson added that “we will continue to focus on structural growth markets where there is increasing electronic content.”

Broad approval

The news has been widely welcomed by those in the City. Harry Philips of Peel Hunt commented that “the disposal itself is not unexpected but the price is far better than the £65m we had in our model.”

He added that “[the deal] leaves net cash at around £50m, which is a terrific platform to build off and this represents relaunch of the company. The management team have done a great job and they will be strongly supported in the next phase of the company’s development.”

Meanwhile David Larkham of Numis advised that “the transaction will… materially improve the quality of earnings since operating margins in this division were particularly low at 1.3%.”

Strong trading

News of the disposal was not the only cause for cheer, however, with TT Electronics also putting out a short — but reassuring — commentary on current trading, the firm advising that the “pattern of trade across the remaining business has been good,” and that the “order book remains strongly ahead.”

The company’s decision to concentrate on structural growth markets with improving electronic content is clearly producing the goods, and prior to today’s results the City had been expected earnings improvements of 15% and 9% in 2017 and 2018 respectively.

I reckon the firm is worthy of serious attention, particularly given its very-unassuming current forward P/E ratio of 14.8 times.

Medical marvel

While Smith & Nephew (LSE: SN) may not be expected to generate eye-popping earnings growth in the near future — rises of 1% and 9% are anticipated in 2017 and 2018 — I am convinced profits should explode in the years ahead as rising healthcare investment across the globe powers demand for the company’s artificial joints and limbs.

The FTSE 100 giant has been pressured in recent times as demand from China has moderated and economic pressures in the Middle East weighed. But sales at the company seem to have picked up in 2017, and particularly in emerging territories (underlying sales growth in these regions returned to double-digits during January-March, rising 13%).

These figures underlined the huge potential of these highly-lucrative regions. And I believe the huge investment Smith & Nephew has made in growth arenas like sports medicine and robotics could also lay the base for stunning revenues growth in new and established markets alike.

I reckon Smith & Nephew’s slightly-heady forward P/E rating of 20.4 times is decent value given the company’s robust long-term outlook.

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.

Royston Wild has no position in any of the 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

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