It’s sometimes easy to see why a particular share has grown… after the event. What about beforehand? Past growth isn’t necessarily an indicator of future share price increases. But I do think there are some helpful growth clues to look for. Using them, I would consider these two UK shares to buy now as offering growth potential for my portfolio.
Double-digit earnings growth: Bunzl
Bunzl (LSE: BNZL) provides customers with supplies such as cleaning products and catering packaging. While it may not be a glamorous business area, as the old saying goes, “where there’s muck, there’s brass”. I like the fact that even in an economic downturn, demand for cleaning products should be resilient and if anything, the pandemic has boosted demand. Bunzl also has a long history of acquisitions, which means it can continue to bolt on growth opportunities. Basic earnings per share have shown a compound annual growth rate of 11% over the past three years. That reflects the company’s adept response to pandemic demand as well as its ability to grow through buying smaller companies in the same field.
Despite that, the Bunzl share price has actually fallen over the past year, albeit only by around 1%. But in a period when the FTSE 100 has grown 20%, that performance looks weak. I think it could be among UK shares to buy now for my portfolio. While I like Bunzl for its growth prospects, it also pays dividends. The current yield is 2.2%.
Risks to the Bunzl share price
But if the growth story is strong, why have the shares not risen? I think the market is nervous about a couple of post-pandemic concerns. Will demand fall back? Will cost inflation eat into profit margins?
Both are risks to revenues and profits at Bunzl. But I think the company’s proven ability to grow revenues and earnings suggest management is able to deal with changing business environments. Looking for growth, I would consider adding Bunzl to my portfolio.
Another good UK share to buy now: AstraZeneca
There’s another FTSE 100 member whose shares have significantly underperformed the index over the past 12 months — pharma giant AstraZeneca (LSE: AZN). Its shares are only around 2% higher than they were a year ago.
But that masks a recent trend in the AstraZeneca share price. The shares have added 28% since their March lows and I think they could have further to go. The company’s vaccine programme has provided a big boost to revenues, which in its interim results jumped 23%. As it becomes clearer that many countries plan seasonal booster programmes, what once looked like a one-off revenue boost for the company could in fact help support growth for years to come.
Add to that the wider portfolio of drugs, a promising pipeline, as well as acquisition activity, and I feel AstraZeneca can grow earnings in the years to come. With a price-to-earnings ratio of 47 already, there’s a risk that won’t translate into growth in the AstraZeneca share price. But I still consider these as good buys today for my portfolio, as I expect revenue growth and keeping a careful eye on costs will help the company’s financial performance.
