Two high-growth large-caps I’d buy today

Edward Sheldon looks at two large-cap stocks that offer compelling long-term investment potential.

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Today, I’m looking at two stocks that I believe offer potential for both capital growth and dividend growth over the long term.

Paddy Power Betfair

Shares in betting giant Paddy Power Betfair (LSE: PPB) have endured a rough ride over the last year, falling over 20%.

Concerns relating to a government crackdown on fixed-odds betting and TV advertising have hit sentiment across the entire betting sector. And news yesterday that CEO Breon Corcoran will step down after 16 years with the group, was not received well by the market. The stock has fallen further this morning, after releasing half-year results that missed analysts’ expectations.

After such a significant decline, could the stock now be offering long-term value?

While today’s half-year results were certainly not as impressive as last year’s, the numbers don’t look all that bad in my view. Indeed, revenue for the half year rose 9% to £827m and underlying EBITDA increased 21% to £220m, with the EBITDA margin rising 3 percentage points to 27%. The company stated: “We believe that the investments we are making, as well as our scale, market positions and leading capabilities, position us well for sustainable profitable growth.”

At the current share price of 7,175p, Paddy Power Betfair now trades on a forward-looking P/E ratio of 17.9, which doesn’t look excessive for a company forecast to increase revenue and earnings per share this year by 17% and 21% respectively. The fall in the share price has also boosted the dividend yield to 2.1%, and with the company forecast to pay out 201p for FY2017, the forward-looking yield has risen to a healthy 2.8%, covered twice by earnings.

With that in mind, while sentiment at Paddy Power Betfair is poor at present, I believe value could be emerging here for those with a long-term mindset.

Experian

Another stock that has pulled back in recent months is credit check specialist Experian (LSE: EXP). After rising from just over 1,000p in September 2015 to over 1,700p in May this year, the stock has since pulled back approximately 10% to now trade at 1,530p. At that price, it is starting to look interesting, in my opinion.

Experian owns credit information on hundreds of millions of individuals and businesses, and sells this data to banks and other financial firms that require an understanding of the credit risk of potential clients. The company has been building its database for over 20 years now, and therefore enjoys a dominant position in a market that has high barriers to entry. The business is diversified geographically, with operations in the UK, Europe, North America, Latin America, the Middle East and Africa and Asia.

City analysts forecast earnings per share of 95 cents for FY2018, placing the stock on a forward-looking P/E of 20.9 at present. While that’s clearly not a bargain valuation, I don’t think it’s an unreasonable valuation for Experian, given the company’s ‘Buffett-style’ competitive advantage and dominance within its sector.

A dividend yield of 2.1% is also on offer, and the company has a good recent track record of dividend growth, lifting the payout from 32 cents to 41.5 cents per share over the last five years. With that in mind, I believe the 10% pull-back in Experian’s share price may have created an attractive entry point into the stock.

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Experian and Paddy Power Betfair. 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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