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I’d happily sell this Neil Woodford Footsie share for this growth giant

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Dice engraved with the words buy and sell, possibly in FTSE 100
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As one would expect from someone of Neil Woodford’s calibre, the investment guru’s collection of funds are littered with many proven share market winners that have the capability to keep on delivering stunning returns.

But there are also plenty of what I would consider to be duds. One such stock is FTSE 100 clothing giant Next (LSE: NXT).

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I used to own shares in the retailer back in the day but was encouraged to sell up as the rampant sales growth over at its Next Directory engine room has slowed markedly in recent times. The internet and catalogue division saw sales rise 5.7% in the six months to July 2017, down from 7.1% the year before; 8.2% in the same period in fiscal 2015; and 16.2% a year before that.

Next’s falling might can be attributed to the huge efforts its mid-tier competitors like Marks & Spencer have made developing their own online operations. But this is not the only reason, as shoppers have been seduced by the cut-price togs offered over at the likes of H&M and Associated British Foods’ Primark.

And the attack from these value-led new kids on the block is likely to intensify in 2018 and probably beyond as inflation continues to outstrip wage growth, and broader economic uncertainty forces consumers to tighten their pursestrings.

I like the way you work it

In this climate I would be much happier to splash the cash in Hays (LSE: HAS), a share making headlines in Thursday business after the release of latest trading numbers.

I’ve long been a fan of the recruitment giant on the back of its sprawling global presence. And these faraway territories once again came to the company’s rescue during July to December.

While its UK and Ireland marketplace remained “subdued” in the period, Hays continued to witness breakneck sales growth elsewhere. In Germany, its largest market, net fees jumped by 17% to an all-time high of £134.8m, and it reported record net fees in 19 of its other overseas markets. Promisingly, the FTSE 250 business is boosting its headcount in international markets (this rose 18% in the six months), and particularly in its critical German territory, to keep business flowing in.

Accordingly, City analysts expect earnings growth to reach double digits in the 12 months to June 2018, to 15%, and for Hays to follow this with a 10% advance in fiscal 2019. In my opinion a prospective P/E ratio of 17.6 times is a small price to pay to tap into the recruiter’s exceptional earnings prospects.

Further profits pain predicted

As I said, Next is sitting on much shakier ground and this is reflected in current broker forecasts. For the 12 months ended January 2018 a 7% earnings drop is forecasted, and the retailer is expected to follow this with a 1% decline in the current year.

A 3% rebound is forecast for fiscal 2020 but I remain far from convinced that Next has what it takes to bounce back into growth any time soon, particularly as growing cost pressure heaps further strain on margins. In my opinion investors should ignore the company’s cheap forward P/E ratio of 12.1 times and shop for other shares.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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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