2 overlooked growth shares I’d consider buying for the next 10 years

Here’s one growth share that I think has been plodding along nicely, and another that could be coming back from adversity.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

I do like it when a company’s chairman opens its results announcement with “I am pleased to report good trading results for the financial year to 31 March 2019.”

It’s James Latham (LSE: LTHM) of which I speak, and the timber and panel products distributor has just announced a 9.4% rise in revenue. That did translate to a less impressive rise in pre-tax profits, from £15.2m a year ago to £15.3m as gross margins have shrunk a little.

Still, in a year in which there’s been pressure on the construction industry, I think that’s a pretty decent result. And after adjustments, earnings per share perked up 6.4% to 61.1p, and the full-year dividend has been lifted by 7.8% to 17.9p per share.

Dividend lesson

There’s a dividend lesson here. Cover by earnings has dropped, but only from an extremely healthy 3.9 times in 2018 to a still very healthy 3.5 times this year. When a company has strong dividend cover, it can even-out its payments over the long term for a stable income.

Admittedly, the yield is only around 2%, but that’s still better than you’d get from a Cash ISA, and in any case, I see it as a bonus from what is effectively a long-term small-cap growth prospect.

The share price went off the boil in late 2017, but the subsequent 12-month drop has now largely recovered, and we’re still looking at shares on a trailing P/E of 14 after the morning’s 3.5% rise.

The company enjoys a net asset position too, so there are no debt worries as there are with so many bigger companies on similar fundamental valuations.

The new year has started well, with sales per working day 4.5 % higher for April and May than last year, and margins are starting to improve.

Biotech

A couple of years ago, I suggested I’d sell Purplebricks shares and buy Allergy Therapeutics (LSE: AGY), a pharmaceutical group specialising in allergy vaccines.

I kind of got it half right, as since then Purplebricks shares have fallen by 73% while Allergy Therapeutics’ have lost 60%. So what’s gone wrong?

There have been a number of issues, but a trading update plus the settlement of a litigation dispute give me some cause for optimism.

Looking at the latter first, on Thursday the company told us that “it has received a $7.6m settlement from Inflamax Research Inc.  in relation to legal proceedings about the previously disclosed inconclusive Phase II Grass MATA MPL trial which took place in the USA in 2015-16.” It added that “Inflamax has also agreed to pay a substantial part of the Group’s legal costs.”

The case was brought by Allergy Therapeutics “against Inflamax in March 2017 for breach of contract and misrepresentation [in relation to that study].”

Trading

A simultaneous trading update is headlined “2019 full-year earnings expected to be ahead of market expectations,” and says that net sales should be in line with expectations and should show good growth “across most of Europe but especially in Spain.”

R&D costs are lower than anticipated, and the legal settlement gives the firm a cash boost, but is it a good buy now? From a low in March this year, Allergy Therapeutics shares are up 69%, and to me that suggests this is a company worth watching. Again.

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.

Alan Oscroft 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.

More on Investing Articles

Black father holding daughter in a field of cows
Investing Articles

A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data…

Read more »

Investing Articles

Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be…

Read more »

Investing Articles

At £4.76, is the Aviva share price a steal? Here’s what the charts say!

Aviva has outperformed the Footsie over the last year. But is there still value in its share price? This Fool…

Read more »

Photo of a man going through financial problems
Investing Articles

Does a 43% price drop make this undervalued UK stalwart one of the best cheap shares to buy now?

After losing a third of its value of the past five years, this might be one of the most undervalued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

My top 3 picks today for a £20,000 Stocks and Shares ISA

Here are three very different investments to consider for a Stocks and Shares ISA, covering both the UK and US…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The Darktrace share price has been surging — and it could climb higher

I think the Darktrace share price could have more room to run. Despite the competitive AI industry, the firm looks…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

With its 7% dividend, should I be watching the Aviva share price?

Dividend investors will struggle to find many companies with a yield above 7%, so should the Aviva share price be…

Read more »

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »