2 dependable growth stocks I’d buy before Christmas

Royston Wild looks at two shares with excellent earnings potential.

| 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.

Although revenues and profits at Cohort (LSE: CHRT) remain under pressure, I am confident that its long-term earnings picture remains solid.

The defence giant advised Wednesday that revenues dipped 10% in the six months to October, to £44.8m, while adjusted operating profit ducked 8% year-on-year to £3.6m. On top of this, it said order intake fell to £39.2m from £40.5m previously, and that its closing order book was down to £132.1m from £136.5m.

However, I see no reason for alarm yet. Chairman Nick Prest said: “In recent years the Group’s results have been heavily weighted towards the second half and we expect this pattern to be repeated this year. The closing order book and recent order wins support this outlook.”

Growth story goes on

Earnings have increased at a compound annual growth rate of 9.3% during the last five years, and the AIM-listed play is expected to keep this run going with rises of 4% and 6% in the years to April 2018 and 2019 respectively. And I believe the potential for M&A  should keep earnings on an upward tilt.

Despite its bright earnings picture, Cohort can still be picked up for a song, the firm trading on an ultra-cheap prospective P/E ratio of 10.9 times.

And against this backcloth, analysts are expecting dividends to keep growing at a terrific rate, with last year’s 7.1p per share payout anticipated to rise to 8.2p this year and to 9p in fiscal 2019. Consequently Cohort rocks up with decent yields of 2.6% and 2.8% for this year and next.

Read all about it

Retail star WH Smith (LSE: SMWH) is another share with a distinguished earnings record and which, thanks to rapid expansion at its Travel division, looks on course to keep on delivering plump profits growth.

Earnings have swelled at a compound annual growth rate of 8.7% during the past five years which, while not spectacular, is still pretty impressive given the hard work the newsagent has had to undertake to turn around its troubled high street arm.

It has doubled-down on cost-cutting here in the face of ongoing sales pressure. So while like-for-like sales across its high street stores dropped 4% in the 12 months to August, the £12m worth of cost savings helped trading profit remain stable year-on-year at £62m.

And with further expense slashing to come, and the business improving space management and product mix in its stores, the outlook here continues to improve.

But as I say, it is the terrific sales potential of WH Smith’s Travel unit which really promises to churn out exceptional profits growth in the years ahead. Total sales here jumped 9% in fiscal 2017. And with the FTSE 250 company continuing to increase its international footprint (it saw an extra 414 units on foreign soil last year), and traveller numbers continuing to steadily rise, I am expecting the top line to keep sprinting higher.

City analysts agree, subsequently predicting an extra 5% earnings rise in fiscal 2018. And like Cohort, with profits expected to keep moving skywards, its progressive dividend policy is anticipated to keep rolling too. Last year’s reward of 48.2p per share is predicted to move to 51.6p in the present period, resulting in a chunky 2.3% yield.

I reckon WH Smith’s exceptional growth prospects make it a terrific pick today and worthy of an elevated forward P/E ratio of 20.1 times.

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 recommended Cohort and WH Smith. 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 ways to make money from a stock market crash

This writer's not spending time trying to guess when the next stock market crash will be. Instead, he's getting ready…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

How this rocketing FTSE 250 stock is tapping into the billionaire-making AI revolution

As the AI revolution mints new billionaires, this high-flying FTSE 250 company has been making its shareholders wealthier too.

Read more »

Investing For Beginners

4 actionable stock market investing habits that can boost my profits

Jon Smith looks at the stock market and explains how he picks the right shares to buy, running through a…

Read more »

Investing Articles

The Standard Chartered share price leaps on FY dividend and buyback news. Time to buy?

An 8% jump for a UK-listed bank on 2023 results? That's what just happened to the Standard Chartered share price.…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Can Lloyds shares get any cheaper?

Lloyds shares have fallen further following the release of the bank's 2023 results. This Fool senses now is a time…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£7,000 of money to spare? Here’s how I’d aim to turn that into £1,000 in annual extra income

Christopher Ruane explains how he would aim to generate a four figure income to cushion his future, all with dividend…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is this stellar dividend growth stock the only no-brainer buy on the entire FTSE 100?

Picking shares requires careful thought and analysis, but this FTSE 100 growth stock appears to be pressing all the right…

Read more »

Investing Articles

I bought 422 Glencore shares in July and 232 in September. Here’s what they’re worth now

Glencore shares have had a rough ride leaving Harvey Jones out of pocket. Should he cut his losses or average…

Read more »