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2 growth stocks I’d buy and hold for 10 years

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GKN
Image: GKN: Fair use

Buying shares which offer a mix of good value and strong growth credentials has generally been a sound strategy for long-term investors to pursue. However, now that the FTSE 100 is close to its record high, finding such stocks is proving more difficult. While growth potential may still be high, in many cases valuations have become over-inflated.

Despite this, there are still stocks which could be worth buying now for the long run. Here are two prime examples.

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Record performance

Rising 8% on Tuesday was recruitment specialist Robert Walters (LSE: RWA). The company reported a record third quarter, with group net fee income growing 21% versus the same period of the prior year.

All of the company’s regions delivered strong net fee income growth, with the UK’s performance being highly impressive. Net fee income rose 15%, which was above the 12% rise recorded by Asia Pacific. However, both were behind the performance of Europe, where net fee income growth was 31% as the region benefitted from a continued loose monetary policy being pursued by the ECB.

With Robert Walters forecast to post a rise in its bottom line of 17% in the current year and a further gain of 12% next year, it has strong growth credentials. The company appears to be benefitting from its diverse geographical spread, and may even be able to enjoy a foreign currency translation boost should the pound remain weak.

Since the company trades on a price-to-earnings growth (PEG) ratio of just 1.3, it appears to offer growth at a very reasonable price. While the business is cyclical and its outlook may be relatively uncertain, it offers diversity and a wide margin of safety. Therefore, now could be an opportune moment to buy it.

Low valuation

Also offering growth at a reasonable price is global engineering company GKN (LSE: GKN). The company has a diverse geographical spread which means it may be a sound place for investors who are concerned about the outlook for the UK economy to put their money.

GKN is forecast to post a rise in its earnings of 8% in the current year, followed by further growth of 5% next year. The company has a price-to-earnings (P/E) ratio of just 10.6, which suggests it has a wide margin of safety. Certainly, its growth prospects may not be all that different to those of the wider index, but with the FTSE 100 at a record high, GKN may be one of the cheaper stocks in the index.

Furthermore, the company has dividend growth potential. Although it yields just 2.7% at the present time, shareholder payouts are covered 3.5 times by profit. This suggests that the company could double its dividend without hurting its capacity to reinvest for future growth. It could also mean that the stock has growth, value and income potential over the long term.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. 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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