I’m guessing you’d like to retire with a £1m stocks portfolio. Keeping your shares in an ISA to avoid tax should help your money to grow faster. But to make a million before you retire, you’ll also need to find the best growth stocks to buy today.
The stock market crash has slashed the valuations of many high-flying growth stocks. Many have bounced back strongly, but I think there are still some bargains to be found.
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Today I want to look at two of my favourite growth stocks and explain why I think they could help you hit a million.
A long-term winner
My first pick is price comparison firm Moneysupermarket.com (LSE: MONY). I’m sure this business needs no introduction, but you might be surprised at just how profitable it is.
Helping customers find cheaper credit cards, loans, insurance and energy suppliers generates big commission payments for Moneysupermarket. In 2019, the group generated an operating margin of 30% on revenue of £388m.
Although the coronavirus pandemic has hit demand for many popular financial products, I only see this as a temporary disruption. Moneysupermarket’s profits rose by 50% between 2015 and 2019, and the company is developing new services to support future growth.
City forecasts suggest profits will fall by around 10% in 2020, before rising by 15% in 2021. This puts MONY shares on a forecast P/E of about 17 for 2021, with a dividend yield of 4%. I rate the stock as a buy at this level. In my view, this is one of the best growth stocks you could buy today.
Under the radar: a top growth stock I’d buy now
IT specialist FDM Group (LSE: FDM) probably isn’t a company you’ve heard of. This FTSE 250 firm provides IT consulting services for clients. Areas where FDM works include software testing and development, project management and business analytics.
FDM directly employees all of its consultants (known as ‘Mounties’) so it can provide a consistent and reliable service to clients. The company is run by CEO Rod Flavell, who owns 7.5% of the stock, suggesting that his interests should be closely aligned with those of smaller shareholders.
Revenue topped £250m for the first time in 2019, generating an operating profit of £53m. Like Moneysupermarket, this business is highly profitable and generates a lot of surplus cash. This is used to fund continued growth and pay generous dividends.
FDM’s dividend is paused right now, but trading has remained stable so far this year. I expect dividend payments to restart fairly quickly.
The shares currently trade on 24 times 2021 forecast earnings. That may seem expensive, but I think FDM’s strong growth record and high profitability justify a high price. I’ve been buying more during the stock market crash.
Make a million quicker
The average long-term return from the FTSE 100 is 8% per year. My sums suggest that if you invest £250 per month in the FTSE within a tax-free ISA, you’d hit £1m after 41 years.
FDM and Moneysupermarket have generated average earnings growth of 15% per year since 2014. If you can build a portfolio of shares that generate this kind of growth, I estimate that you could build a £1m ISA in just 26 years.
That’s why I reckon these are two of the best growth stocks you can buy now.