Investing £1k today? I’d buy these 2 UK growth stocks for my ISA!

I think these two stocks are undervalued and set for big gains, writes Thomas Carr.

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Just like its international counterparts, the UK stock market has been volatile of late. After falling 5% in less than two weeks on the back of coronavirus fears, the FTSE 100 has largely recovered its losses, and is now down by less than 2% since the start of the year.

After this recovery, I’m finding it harder to identify stocks that are attractively valued. However, I think these two stocks are exceptions with their appeal shining through any volatility clouds.

Sports and Wellbeing

Science in Sport (LSE: SIS) develops and sells premium sports nutrition products to professional athletes, sports enthusiasts and gym-goers. The takeover of the PhD protein brand at the end of 2018 has transformed the company, effectively doubling its size.

Full-year revenue for 2019 is expected to come in at around £50m, up from £21m the year before, pre-acquisition. But even before the takeover, SiS’s sales growth was on a steep trajectory, rising from just £6m in 2014.

The combination brings together Science in Sports’ energy, hydration and endurance products, with PhD’s protein bars, drinks and powders. PhD’s brands now give the enlarged group access to a much bigger and faster-growing market that is not restricted to elite athletes and sports teams.

Both brands registered strong growth of close to 25% last year, with e-commerce sales up 34%. The group aims to achieve synergies by combining distribution and sales teams, and by taking advantage of established sales channels.

2019 also saw the management team strengthened, through the hiring of a number a highly experienced executives, that have worked for the likes of ASOS, The Hut Group and Heineken.

Management is now looking further afield for growth. International sales rose 44% last year, with the PhD brand launching in Saudi Arabia, and the SiS brand entering Brazil.

Now for the bad news. The group has not yet actually made a profit, and is set to make a small loss for last year. But I think that is about to change. I would be very surprised if the group didn’t report a profit in 2020, and I believe that these shares could potentially double in value.

At present, the company is valued at £57m, which is only narrowly above its net asset value of £47m. I think that even a small profit would prompt a quick re-rating of the share price, and that is exactly what I expect to happen.

Residential Housing

Another company that has grabbed my attention is Redrow (LSE: RDW). The housebuilder trades at just eight times last year’s earnings, and looks cheap compared to its peers.

After tax-profits have grown by an average of 19% in each of the last four years, while revenues have almost doubled over the same period, to £2.1bn last year.

The fist half of the year saw Redrow achieve an impressive ROCE (return on capital employed) of 25%. The group also registered an 18% increase in private reservations, which is all the more impressive considering the unfavourable backdrop of Brexit and a general election.

This year’s sales are forecast to be heavily weighted towards the second half of the year. Given the strong order book and sales resilience in the first half of the year, I expect Redrow to report higher profits, both this year and beyond.

A dividend yield of 4%, and a chronic shortage of new housing, only strengthen my conviction.

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.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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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