These 2 terrific growth stocks could make you a millionaire

Following billionaire Buffett’s advice could net you a tidy profit.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Billionaire US investor Warren Buffett believes that it’s better to buy “a wonderful company at a fair price than a fair company at a wonderful price”.

The two companies I’m looking at today have both delivered gains of more than 60% over the last year, during which the FTSE 100 has risen by just 7%. Are these the kind of great stocks at fair prices we’re looking for?

“A strong pipeline”

Manufacturing group IG Design (LSE: IGR) produces giftware, stationery and toys which are sold in more than 80 countries. For example, it sold more than 40m pens and pencils and 80m Christmas crackers last year.

Last year’s sales totalled £311m, and generated underlying earnings per share of 18.2p. Broker consensus forecasts suggest that sales this year will rise by 4.5% to £325m, while earnings are expected to rise by 11.5% to 20.3p.

Today’s first-quarter trading update suggests to me that the group’s management is confident of delivering on these forecasts. IG says that performance so far this year has been in line with expectations, while the group’s order book is said to be “at record levels”.

Upgrade likely?

IG Design is hoping to improve profit margins by tweaking product ranges and improving its manufacturing processes. Management is also on the lookout for acquisition opportunities. The group’s return on capital employed has risen from 9.1% to 15.1% since 2014, suggesting these plans are working.

In my view, the wording of today’s statement suggests that chief executive Paul Fineman and his team are very confident about the year ahead. If trading continues on this basis, I think there’s a good chance that broker forecasts will be upgraded over the next six months.

The shares trade on a forecast P/E of 18 at today’s price of 385p. But I think there’s a good chance this valuation could end up looking cheap as IG continues to grow. In my view, the shares remain worth buying.

Rising expectations

Distributing a range of more than 500,000 electronic and industrial products requires great organisation and large scale to be profitable. Electrocomponents (LSE: ECM) appears to tick both of these boxes.

Sales totalled £1,512m last year, and the firm says its RS Components business is the number one distributor for engineers across Europe and Asia Pacific. The group also has a US business that’s growing strongly.

Last year’s results put Electrocomponents on a pricey trailing P/E of 30, with a dividend yield of just 1.9%. But group sales rose by 13% during the three months to 30 June, and broker forecasts suggests that earnings per share could rise by 18% this year and by 12% next year.

That gives the stock a forecast P/E of 25 for 2017/18, falling to a P/E of 22.5 in 2018/19. While that’s not cheap, I believe this company has many of the same qualities that make IG Design attractive — improving profitability, large scale and strong cash generation.

It’s worth noting that earnings forecasts for the current year have risen by 46% since last August. The group’s strong growth in the US and Asia suggests to me that this momentum could continue. I believe the shares could prove to be a profitable buy at current levels.

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.

Roland Head 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

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

Why wait? I’d buy FTSE 100 shares now before the next stock market rally!

Our writer explains why he'd snap up what he sees as bargain FTSE 100 shares now rather than waiting in…

Read more »

Investing Articles

Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he's reconsidering his stance. Here's why.

Read more »

Investing Articles

Aviva share price: 3 reasons to consider buying for 2024

The Aviva share price is still lower then when I bought some nearly a decade ago. Here's why I'm thinking…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

These 2 shares could bank me £328 a month in second income

Jon Smith runs through two FTSE stocks that have above-average dividend yields that could pay out a generous second income…

Read more »

Stack of one pound coins falling over
Investing Articles

This passive income plan is simple – but could earn me thousands!

Christopher Ruane explains how putting a fiver a day to work in the stock market might help him earn thousands…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on

After record profits, are Lloyds shares a buy, sell, or hold?

As Lloyds pulls in pre-tax profits of £7.5bn, boosts its dividend, and continues to repurchase shares, are the company’s shares…

Read more »

Investing Articles

NatWest shares: is a once-in-a-lifetime opportunity on the way?

Should investors get ready for a unique opportunity as the UK government plans to sell off its NatWest shares later…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

3 charts that indicate this FTSE 100 stock is a once-in-a-decade passive income opportunity

The dividend yield on Unilever shares is at a 10-year high. And Stephen Wright also sees positive signs for the…

Read more »