2 cheap growth stocks I’d buy for my ISA

These two shares appear to be undervalued given their future prospects.

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With global stock markets coming under pressure in recent months, there could now be a number of buying opportunities on offer. Certainly, in the near term there is the scope for further falls in valuations. Investors may react negatively to news of a ramp-up in global tariffs, while inflation continues to be a potential threat.

However, now could be the right time to buy undervalued shares for the long term. They could offer high returns over the coming years. With that in mind, here are two stocks that could offer investment potential right now.

Positive outlook

Reporting on Friday was oil and gas company Savannah Petroleum (LSE: SAVP). The company released its full-year results for 2017, with it being a transitional year for the business. The company was able to create a full cycle exploration and production company following the acquisition of assets from Seven Energy. This is set to improve the future cash flow of the business and may even equate to dividend payments in future years.

Improving cash flow may also create additional investment capacity for the business and could allow it to ramp-up its exploration and production activities. The company is due to deliver a black bottom line in the current year and follow this up with growth of 33% in 2019. Despite this, the stock has a price-to-earnings growth (PEG) ratio of just 0.3, which suggests that it offers a wide margin of safety at the present time.

Of course, the oil price could experience a period of volatility, which could affect valuations across the oil and gas sector. But with such a low PEG ratio, Savannah Petroleum could offer an impressive risk/reward ratio for the long term.

Low valuation

Also offering growth at a reasonable price within the oil and gas industry is Premier Oil (LSE: PMO). The company has a poor track record when it comes to profitability. It has reported four consecutive years of losses, but this is set to change in the current year. It is expected to deliver profitability in 2018, with growth of 38% forecast for next year.

Following a period of financial difficulty, it is perhaps unsurprising that the stock has a relatively low price-to-earnings (P/E) ratio. It currently stands at 6 using the current year’s forecast earnings figure. And with a PEG ratio of just 0.1, there could be excellent value for money on offer.

Certainly, Premier Oil may experience a period of high volatility in future. There is no guarantee that the oil price will continue to rise after a buoyant period. That’s especially the case if the prospects for the global economy decline as a result of a trade war. However, with it having made improvements to its operational efficiency and its balance sheet, it could offer a rising share price over the long term. Therefore, now may be a good time to buy it.

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.

Peter Stephens has no position in any of the 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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