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Two growth stocks that could make you a millionaire

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Finding shares which offer high growth and fair valuations is a hugely challenging task. That’s because investors tend to bid-up the valuations of companies which have bright futures, which can lead to a narrower margin of safety for potential new investors. And with the FTSE 100 having experienced a Bull Run in recent years, the situation is arguably more challenging now than at any point in recent years.

Despite this, there are still some companies which appear to be undervalued. Here are two examples which could provide high returns in the long run and help to make you a millionaire.

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Improving performance

Reporting on Thursday was animal genetics company Genus (LSE: GNS). Its results for the year to 30 June showed that it is making good progress with its strategy. Evidence of this can be seen in a revenue rise of 18%, with strong porcine revenues. They increased by 20%, with notable growth in Asia and from royalties. There was also improving performance from bovine revenues, which were 13% higher than in the previous year.

The effect of increasing sales meant that the company’s adjusted profit before tax moved 13% higher. Its growth was offset to some extent by a planned increase in R&D investments, but they should help the company to deliver further growth in future years. In fact, R&D investment increased by 27% as key initiatives in genomic selection, gender skew and gene editing made considerable progress.

Looking ahead, Genus is forecast to post a rise in its bottom line of 7% in the current year, followed by further growth of 12% next year. Although it trades on a price-to-earnings (P/E) ratio of 29, its mix of high and sustainable growth means it could perform relatively well in the long term.

Defensive profile

With the FTSE 100 facing a number of major risks such as geopolitical challenges in North Korea and political risks in the US, companies with defensive profiles could become more popular in future. Of course, relatively few companies with defensive characteristics offer high and dependable growth. That’s why medical technology company Smith & Nephew (LSE: SN) could prove to be a worthwhile investment in the long run.

The company looks set to capitalise on the opportunities created by an ageing population. For example, it provides knee and hip replacements alongside its woundcare and sports medicine operations. Together, these businesses provide it with a degree of diversity, as well as lack of exposure to the boom/bust patent cycle which is a feature of a number of healthcare companies. As such, its earnings growth tends to be steady and highly sustainable.

Over the next two years, Smith & Nephew is expected to post a rise in its bottom line of 6% per annum. While it has a P/E ratio of 20.6, it seems to be trading at a fair price given its diverse and robust business model, as well as its long-term growth potential.

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Peter Stephens has no position in any 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 us better investors.

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