2 top growth stocks for clever investors

Royston Wild looks at two stocks with terrific earnings prospects.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

IFG Group (LSE: IFP) slipped to five-week lows in mid-week business following a less-than-enthusiastic response to half-year numbers, the financial services play last 3% lower from Tuesday’s close.

IFG announced that revenues fell 4% between January and June, to £38.5m, and as a consequence adjusted operating profit fell to £3.7m from £5.8m a year earlier.

However, the Dublin-based company saw assets under administration and advice gallop to £29.1bn from £24.4bn in the corresponding 2016 period, while it also saw new client activity take off at both of its divisions. At James Hay the number of new clients on its books rose 50% year-on-year to more than 3,000, while Saunderson House added 144 new clients versus 126 a year ago.

The solid first-half performance prompted chief executive John Cotter to declare that the growth in clients and assets at both businesses “[reflects] the quality propositions that they offer our clients, and our ability to compete successfully in our chosen markets.

He added that “whilst short-term financial performance is being impacted by the low interest rate environment, restructuring costs and the resolution of legacy issues, we expect a much improved second-half underlying performance, particularly in James Hay as the effects of repricing and restructuring start to bear fruit.”

Self-help to pay off

And IFG is confident that restructuring efforts will really begin to bear fruit from next year onwards. Cotter commented that “we are confident that both businesses are on a strong growth trajectory and that the underlying performance will translate into a much improved financial performance in 2018.”

This positive outlook is certainly shared by City analysts, who expect the business to follow a predicted 3% earnings rise in 2017 with a 25% advance in 2018.

These figures leave IFG dealing on a P/E ratio of 19.2 times for 2017, peeking above the widely-regarded value benchmark of 15 times or below. However, this slips to a much-improved 15.4 times for next year.

And the financial services giant offers an added sweetener through chunky dividend yields — these ring in at 3.7% and 3.9% for 2017 and 2018 respectively.

Sure, trading may be a little bumpy right now, but I believe IFG’s transformation strategy should deliver decent returns over the long term.

New business booming

Those seeking explosive earnings growth right now should also check out St James’s Place (LSE: STJ) as new business powers ahead. It recorded a net inflow of funds under management of £4.3bn during January-June, up 39% year-on-year, helping total funds under management move to £83bn from £65.6bn in the corresponding half in 2016.

The London company saw new business profits climb to £343m in the period from £228.9m previously, and it is steadily building its adviser base to keep business rolling in — it currently has 3,540 advisers on its books, up 3.7% from the start of the year.

City brokers believe that the bottom line is about to catch fire too, current forecasts suggesting a 95% profits advance in 2017. And an extra 21% rise is forecast for 2018.

Subsequent P/E ratings of 27.9 times and 23.1 times for this year and next may be pretty toppy on paper. However, PEG multiples of 0.3 for 2017 and 1.1 for 2018 suggest that St James’s Place is actually attractively valued relative to its growth prospects.

When you also throw in meaty dividend yields of 3.5% and 4% for 2017 and 2018 respectively, I reckon the financial colossus is worthy of serious attention right now.

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. 

More on Investing Articles

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »