I’m always trying to find UK growth stocks that could generate me large returns in the long term. Making a few percent here and there over the years could fund my retirement. But bigger percentage gains could make it a much happier retirement. So stocks that have generated returns of over 100% over the past couple of years look very attractive to me. I feel it’s a long enough time frame to show sustainable growth, so that the stocks won’t be seen as just a flash-in-the-pan. So let’s get right into it.
Not what it says on the tin
Over the past few months, there’s been a pick-up in coverage of Scottish Mortgage Investment Trust (LSE:SMT). It can be confusing when first reading about this growth stock, as it’s called a trust. It’s also confusing as the fund isn’t highly exposed to the property market at all. It has a wide remit to invest in whatever the fund manager deems appropriate.
SMT mostly invests in individual stocks, with most large holdings being US-based companies. As of the end of 2020, the three largest holdings were Tesla, Amazon and Tencent. These three made up 20.8% of the overall portfolio. Given the stellar performance of these firms over the past couple of years, SMT can rightly be called a top UK growth stock. The share price has risen 139% over the past two years, and 76% over one year. The share price currently trades at around a 6% discount to the net asset value of the fund (NAV).
Going forward, I think this performance could continue due to the skill of the fund managers. The recent dip in share price (down 5% over the past month) could represent a good dip to buy. However, the dip correlates to a sell-off in the tech sector. So this is a risk I need to watch for, as the fund has a high exposure to tech names. If this sector slumps, it’ll likely bring the SMT share price down with it.
A UK growth or defensive stock?
The second UK growth stock that would have doubled my money is the London Stock Exchange Group (LSE: LSG). Again, this might seem slightly confusing at first glance. How does the LSE actually operate and make money? The company provides information services, paid for by subscription fees. It also generates fees from the trading on the exchange, including post-trade settlements.
The share price performance has been strong, up 115% over two years and 28% over one year. It has a high P/E ratio of 65 though. A Q3 trading update showed growth in all of the revenue-generating areas of the operation for the nine months to date. I like the firm as it’s a relatively simple business model, and one rather unaffected by the economy in general. As such, I see it as a UK growth stock, but one that has a defensive tilt that should allow it to perform well during both good and bad times.
A risk with the LSE is that high P/E that doesn’t leave a lot of room for weaker performances. And there’s the regulatory environment post-Brexit. The clearing of certain financial derivatives is expected to move to Europe, with a deal on financial services expected soon. A negative blow here could spell trouble as trading volumes (and fees) would decrease.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Tesla and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.