Some sectors are viewed by most investors as lacking in growth appeal. While this may be true for the majority of stocks operating within them, there are always exceptions.
For example, the UK supermarket sector is viewed as a highly competitive arena where there is a general lack of growth. Deteriorating conditions for consumers also mean that companies such as Tesco (LSE: TSCO) are unlikely to perform well in the eyes of many investors. However, the company appears to have a bright financial future. And it’s not the only stock which could offer secret growth appeal this year.
Improving outlook
While the UK supermarket sector may be a difficult place to do business at the present time, Tesco is forecast to deliver strong earnings growth. In the current financial year its bottom line is expected to rise by 56%. This is due to be followed by further growth of 25% next year and 21% the year after. This is a relatively high rate of growth at a time when consumers are seeing their real disposable incomes fall and may therefore be gradually focusing on price to a greater extent than in the past.
While the deal to buy Booker could be a growth catalyst for the company, its strategy also seems to be working well. In the last few years, it has focused on its core operations and has sidelined the various pet projects of the past. This seems to have made the business more efficient, leaner and better able to compete with the disruptive budget supermarket chains.
With Tesco trading on a price-to-earnings growth (PEG) ratio of 0.6, it seems to offer excellent value for money. Certainly, there is scope for difficulties in its key market, but with a wide margin of safety it could be worth buying today.
Strong performance
Also offering surprisingly upbeat growth prospects is clay brick and concrete products manufacturer Ibstock (LSE: IBST). It reported encouraging performance on Thursday in its trading update for the 2017 financial year. It showed that it continues to trade as per previous expectations and that there has been further growth in the market for bricks in the UK. Revenue for the year grew by 4% and with the company continuing to invest in its operations via a new soft mud brick factory, it seems to be well-placed to capitalise on positive market growth.
Looking ahead, Ibstock is expected to grow its bottom line by 14% in the current year and by a further 10% next year. This is a strong rate of growth relative to many of its sector peers, while a PEG ratio of 1.2 suggests that the market has not yet priced-in the company’s future prospects. With a stable track record of growth and a strong position in its key markets, the company looks set to deliver improving share price performance.
