I’ve recently been looking for growth stocks to add to my portfolio. I’m focusing on companies that may benefit from significant trends currently in place in the economy. Two companies, in particular, have attracted my attention.
Growth stocks on my radar
The first stock is homebuilder Cairn Homes (LSE: CRN). This Ireland-based construction company is expected to return to growth this year after earnings plunged in 2020.
It looks as if the group is already making solid progress on this front. According to its latest trading update, Cairn generated €131m in revenue from 403 closed new home sales in the first half of its financial year. That compares to €81m from 207 closed sales in the prior-year period.
Management believes this means the company is back on track to hit its 2023 growth target. It expects to generate €350m-€400m in operating cash flow by 2023. The organisation wants to return a large percentage of this cash flow to shareholders and invest for the future.
Overall, City analysts expect the group to report net profits of €31m for 2021 and €60.1m for 2022, which will be the highest level in five years.
Of course, there’s no guarantee the company will hit these growth targets. Nevertheless, they show its potential.
Challenges the company might face in hitting these targets include a housing market slowdown, which could dent buyer demand for properties. An increase in interest rates may also reduce buyer demand.
Despite these challenges, I think Cairn’s recovery is encouraging. That’s why I’d buy the company for my portfolio of growth stocks today.
Gaming boom
While Cairn will provide exposure to the economic trend of rising home and property prices, I’d also buy Frontier Developments (LSE: FDEV) to gain exposure to the gaming industry.
The online gaming industry is growing rapidly and you only need to look at the company’s results for confirmation of just how fast. For its 2020 financial year, Frontier reported revenues of £76m. And in a trading update published at the beginning of June, management noted that it expects revenue for its current financial year to range £130m to £150m.
Further growth is expected in 2023. Management is projecting revenues of between £160m and £180m.
These forecasts are based on several assumptions. The major ones are that the company can release its current pipeline of games on schedule and that consumers decide to buy the products. But if products are delayed, and demand is lower than expected, the firm may miss these forecasts.
Still, I think they show its potential. That’s why I would buy Frontier for my portfolio of growth stocks. If the company can pull off its planned launches over the next few years, it’ll have a solid base from which to grow far into the future.
