Every month, we ask our freelance writer investors to share their top ideas for growth shares with you — here’s what they said for July!
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What it does: BAE Systems is one of the world’s leading defence companies and a major supplier to UK and US armed forces.
In fact, it’s risen around 40% in value in the year to date. And more recently its share price has remained rock-solid whilst other UK shares have toiled in this new bear market.
I think the Footsie firm remains an ideal growth stock for me to buy today. Soaring inflation and growing recessionary risks pose a threat to more cyclical stocks. Defence stocks like BAE Systems, on the other hand, can expect trading conditions to remain robust in the near term, meaning investor selling should be kept to a minimum.
Government defence spending is something that remains broadly resistant to wider economic conditions. War is a constant of history and countries have to be prepared to defend themselves at a moment’s notice.
This explains why City analysts think BAE Systems’ annual earnings will rise 7% in both 2022 and 2023. This is despite the threat that supply chain problems pose to its operations.
Royston Wild does not own shares in BAE Systems.
What it does: Experian provides credit data to lenders to allow them to assess the creditworthiness of potential borrowers.
By Stephen Wright. I’m keeping things simple with my top UK growth share for July.
In my view, a good growth stock is one that grows. Specifically, it grows its earnings and then uses those earnings to generate more earnings. This is exactly what Experian (LSE:EXPN) does.
The company’s strong growth is protected by a high barrier to entry. Experian has a huge database of credit information that it bases its credit scores on, and this would be difficult for a smaller competitor to emulate.
Furthermore, most mortgages require a tri-merge report. Experian’s credit report is part of this, which makes me think that the business will continue to do well going forward.
I’m impressed by the company’s growth and I think that shares trade at a reasonable price at the moment. As such, I’m looking at adding to my investment in Experian stock in July.
Stephen Wright owns shares in Experian.
What it does: Coats is the world’s leading industrial thread manufacturer. It operates in sectors including fashion, energy and telecoms.
This British business has been trading for more than 250 years and operates in 50 countries, with annual sales over $1.5bn.
Analysts expect Coats’ earnings to rise by 13% this year and by 17% in 2022. Despite this positive outlook, the shares currently trade on just 10 times forecast earnings. I reckon that’s too cheap for a business which generated a 21% return on equity last year.
I admit that Coats has disappointed the market before. Demand for some of the company’s products could also fall in a recession.
However, I think the diversity of Coats’ customers should provide protection against localised problems. I’m also impressed by the changes being put in place by CEO Rajiv Sharma. I expect strong growth over the next few years.
Roland Head owns shares in Coats.
JD Sports Fashion
What it does: JD Sports Fashion is a retailer of athletic footwear and athleisure clothing that operates globally.
JD’s full-year FY2022 results, posted in June, were very encouraging to my mind. For the 52 weeks ended 29 January 2022, revenue came in at £8.56bn, up 39% year on year. Meanwhile, adjusted earnings per share (EPS) jumped to 12.8p versus 6.4p a year earlier.
Looking ahead, I’m not expecting growth to continue at this pace. However, in the long run, I expect demand for casual attire to boost revenues and profits significantly.
One risk to consider here is a pullback in consumer spending due to the cost-of-living crisis. This could hit sales. However, with the stock now trading on a forward-looking P/E ratio of under 10, I think a lot of this risk is priced into the stock already.
Edward Sheldon has no position in JD Sports.
What it does: Future is a massive media conglomerate serving digital media on a variety of topics to a global audience of over 300 million people.
By Zaven Boyrazian. Investing in a media publishing house may sound old fashioned. But it’s proven to be a lucrative move for shareholders of Future (LSE:FUTR). The company is one of the largest media groups in the world, with over 250 websites under its umbrella, including TechRadar, Country Life, and its recently acquired Who What Wear. And over the last five years, the stock is up 700%!
Revenue is primarily generated through advertising and subscriptions. But with more service platforms like GoCompare emerging in its brand portfolio, the company has begun earning considerable income through affiliate fees.
Despite delivering high-double digit growth so far this year, shares have since taken quite a tumble thanks to investor sentiment waning. There are undoubtedly risks surrounding management’s primarily acquisition-driven approach. However, with an excellent track record, I can’t help but see this slump as a buying opportunity for my investment portfolio.
Zaven Boyrazian does not own shares in Future.
What it does: Molten Ventures is a UK-based tech-focused venture capital firm with a track record of backing now-listed businesses from very early stages.
By Andrew Woods. Molten Ventures (LSE:GROW) performed well during the pandemic. For the year ended March, between 2021 and 2022, pre-tax profit grew from £267m to £325m. The value of the firm’s gross portfolio also rose from £984m to £1.53bn over the same period.
The company’s most exciting performance, however, is in its earnings-per-share (EPS) growth. Between 2018 and 2022, EPS rose from 89p per share to 200p. By my calculation, this means the firm had a compound annual EPS growth rate of 17.6%. While past performance is not necessarily indicative of future performance, this growth rate is extremely attractive.
The company’s most recent net asset value (NAV) was 937p per share in March. While this is now a few months old, it’s clear that the current share price of 460p is a significant discount. Despite this, the broader economic environment has hit tech stocks particularly hard. There may be a further slide as inflation increases and interest rates continue to rise.
Andrew Woods does not own shares in Molten Ventures.
What it does: Renalytix develops and sells medical devices that can diagnose risk indicators for kidney disease.
By Christopher Ruane. I own shares in Renalytix (LSE:RENX) and so far it has been an absolute dog! The shares have lost 85% of their value in the past year alone. Definitely there are still risks here, such as the substantial costs required to sell the company’s system into more healthcare providers.
But I also see a potentially fantastic opportunity if things go well. There is clinical evidence that the technology can help improve diagnostic outcomes. A presentation this month revealed its positive impact at a leading New York healthcare provider.
Kidney disease is the direct cause of over a million deaths globally each year. If Renalytix can sell its innovative, proven system into more healthcare groups, the scalability of its business model could generate higher revenues without adding costs at the same speed. In the long term I remain optimistic about the outlook, but recognise the risks involved.
Christopher Ruane owns shares in Renalytix.
What it does: Sprirax-Sarco Engineering is a UK-based industrial engineering company focused on thermal energy management
By Paul Summers: Cheltenham-based Sprirax-Sarco Engineering (LSE: SPX) is a high-quality company I’ve been monitoring for a while now. A world leader at what it does, the FTSE 100 member has long generated high margins and returns on the capital it invests. It’s these hallmarks that have been found to reward growth investors like me handsomely over time.
The only problem with all this is that the stock has always looked extremely expensive. Until now, that is. A 40% slide in the share price in 2022 leaves Spirax trading at almost 28 times earnings. Granted, that’s still not cheap. However, the idea of beginning to build a position here for the long term now looks far more palatable.
There’s always a chance things could get worse before they get better if we get a recession. However, high customer loyalty should mean the pain should be temporary.
Paul Summers does not own shares in Spirax-Sarco Engineering
What it does: Carnival operates a list of renowned cruise line brands. It sells deals and cruise packages to popular destinations.
By John Choong. Carnival (LSE:CCL) was close to hitting a five-year low in June, but positive guidance provided in its most recent trading update sent its share price rocketing by more than 10%. While this is minuscule on the wider scale of things, there are reasons to be optimistic about a potential recovery.
Despite the firm missing analysts’ estimates on earnings per share, revenue and room occupancy rate, revenue grew by almost 50%. More importantly, I was impressed with the company’s future bookings. The figure came in nearly double of Q1 2022, marking its best figure since the beginning of the pandemic. This is something to cheer for, because future bookings bring in the much-needed cash Carnival requires to return to profitability.
Provided that travel tailwinds continue to persist, Carnival could pull off a monumental recovery, pay off its debt gradually, and even achieve positive free cash flow soon. As such, grabbing shares at the current price could be a steal for years to come.
John Choong has no position in Carnival