Every month, we ask our freelance writer investors to share their top ideas for growth stocks with you — here’s what they said for September!
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GSK
What it does: GSK is one of the world’s top 10 largest pharmaceuticals producers thanks to drugs like Tivicay and Advair.
By Royston Wild]
The GSK (LSE: GSK) share price has plummeted during the past month amidst fears over stinging legal action in the US. It is believed a swathe of lawsuits related to its Zantac heartburn treatment could cost it billions of dollars.
However, I believe the threat of such colossal damages is now well baked into GSK’s share price. I’d buy the FTSE 100 business owing to its exceptional defensive qualities. The essential nature of its operations should help profits to remain robust even as the global economy toils.
In fact, latest financials show that the pharma giant is actually going from strength to strength. Total sales rose by almost a fifth between April and June, to £6.9bn.
City analysts have been upgrading their profits forecasts following the news. They now think GSK’s earnings will rise 10% year on year in 2022 and 8% next year, too.
This means that today GSK trades on a forward P/E ratio of just 11.4 times. I think this represents super value for money for this growth stock.
Royston Wild does not own shares in GSK.
Melrose Industries
What it does: Melrose Industries is a holdings business that seeks to acquire and improve struggling engineering firms.
By Zaven Boyrazian. Melrose Industries (LSE:MRO) is a holdings company. The group acquires underperforming engineering businesses intending to turn them around before selling them on at a higher price. But the engineering sector, especially aerospace, hasn’t exactly had a great time since early 2020.
Fortunately, now that the travel sector is ramping back up, Melrose’s future looks much brighter. The company has an excellent track record of delivering successful turnarounds. And assuming it hits its margin targets, earnings should be set to swell over the coming years.
There is an undesirable £1.7bn of debt equivalents on the balance sheet that is likely to become more expensive to service as interest rates get hiked. But with just over £470m of cash in its war chest, I see no immediate solvency risk.
That’s why I believe Melrose stock has some solid growth potential as it recovers to its former glory.
Zaven Boyrazian owns shares in Melrose Industries.
JD Sports Fashion
What it does: JD Sports Fashion sells sports fashion and outdoor footwear and apparel.
By Paul Summers: I can understand retail stocks not being popular with investors right now. Even so, the near-halving of growth stock JD Sports Fashion (LSE: JD)’s share price in 2022 feels a bit overdone.
Yes, not many people will be loading up on pricey trainers in the current environment. And, yes, being forced to sell Footasylum for less than half the price it paid to acquire it due to concerns from the UK’s competition watchdog won’t have boosted investor confidence. New CEO Regis Schultz has his work cut out.
Still, I reckon there’s a good brand here. A price-to-earnings (P/E) ratio of nine could also prove excellent value if JD meets its own conservative earnings estimates when half-year numbers are announced on 22 September. Encouragingly, there’s no interest from short sellers as things stand.
I suspect JD will deliver the goods again once confidence returns.
Paul Summers has no position in JD Sports Fashion
Sage
What it does: Sage is a leading provider of cloud-based accounting and payroll solutions for small- and mid-sized businesses.
By Edward Sheldon, CFA. My top growth stock is Sage (LSE: SGE). To my mind, it offers growth (and quality) at a reasonable price.
Sage’s most recent trading update, for the nine months to 30 June 2022, showed that the company is generating solid growth right now. For the period, recurring revenue was up 9% to £1,330m while organic total revenue was up 6% to £1,412m. Looking ahead, the company said that it now expects organic recurring revenue growth for this financial year to be towards the top end of its guidance range of 8-9%.
As for the valuation, Sage currently trades on a price-to-earnings (P/E) of around 26 (using next financial year’s projected earnings). That is higher than the average FTSE 100 P/E ratio. However, I don’t think it’s excessive given that Sage is a high-quality software company with recurring revenues.
Of course, this company is not without risk. One issue to consider is that new competitors are popping up. Overall, however, I think the stock has considerable appeal right now.
Edward Sheldon owns shares in Sage.
Rolls-Royce Holdings
What it does: Rolls-Royce is a British-based multinational aerospace and defence company that’s been struggling since the pandemic.
By Dylan Hood. Rolls-Royce (LSE:RR) shares have struggled to gain any real momentum since the onset of the pandemic. Currently sitting at 80p, they have fallen 37% year-to-date and 30% over the past 12 months. However, earlier this year, Rolls released results which highlighted the firm had turned a profit for the first time since its £4bn loss in 2020.
In addition to this, its more recent H1 2022 results revealed a record order intake for Power Systems and a momentous £1.1bn improvement to cashflows. The firm is also leading the charge in small to medium nuclear reactor technology and has already signed contracts with governments around the world to implement this technology after their approval (expected in 2024).
Finally, as the threat of the pandemic becomes less prevalent, flying hours will continue to increase. Already in 2022, they have climbed 42% compared to 2021. Rolls makes most of its money servicing jet engines, so this is another big plus.
Dylan Hood does not own shares in Rolls-Royce.
Watches of Switzerland
What it does: Watches of Switzerland is a British luxury retail group that specialises in selling Swiss watches and jewellery. It also offers insurance and repair services.
By John Choong. With inflation expected to continue heading upwards, I’m turning my attention to luxury goods. This is because luxury goods tend to have inelastic demand and are catered to a niche market that either benefits from high inflation or isn’t very much affected by it.
This was evident in Watches of Switzerland’s (LSE: WOSG) latest trading update which showed positive numbers. The FTSE 250 firm saw its revenue grow by 31% while many other retailers continue to suffer declines on a year-on-year basis. The outlook given by management was also generally positive as it expects to ends it financial year with 17% to 21% revenue growth, while expanding its offices, showing confidence that demand for its products are still hot.
While revenue growth slowed exponentially from its pandemic highs, I think a reasonable price-to-earnings (P/E) ratio of 19 and an average price target of £13.37 makes this stock a lucrative one for my portfolio. As such, I’ll be looking to add Watches of Switzerland to my portfolio in the near future.
John Choong has no position in Watches of Switzerland
S4 Capital
What it does: S4 Capital is a digital marketing agency network.
By Christopher Ruane. It has been a brutal few months for shareholders in S4 Capital (LSE: SFOR), with the growth shares trading for less than a fifth of where they stood a year ago.
Revenue growth remains strong and I think that even in an economic downturn, demand for digital marketing should stay high. The problem for S4 is its business model. Growing costs threaten to delay the path to profitability. Internal control systems have been found wanting, leading to delays in publishing results.
Many investors have abandoned the shares. But directors have been buying and I think the basic business model remains promising. There is work to be done in scaling quickly without letting costs balloon, as well as restoring investor confidence. I expect chairman Sir Martin Sorrell to address those concerns fast.
Meanwhile, I think the huge fall in the S4 Capital share price presents a buying opportunity for my portfolio.
Christopher Ruane owns shares in S4 Capital.
The London Stock Exchange Group
What it does: the company runs the London Stock Exchange. It also provides data and clearing services via its subsidiaries.
By Stephen Wright. In my view, The London Stock Exchange Group (LSE:LSEG) is one of the most interesting companies in the FTSE 100. I was very impressed with its most recent trading update and that’s why the stock is my top UK growth stock for September.
The company has three major segments – capital markets, data and analytics, and clearing services. Each of these reported solid results. As a result, profits this year are 21% higher than they were a year ago.
Until recently, I’ve found the London Stock Exchange Group difficult to value. Its recent acquisition of Refiniitv made its accounts a little complicated.
More recently, though, things have settled down. I think that the stock is trading at a price-to-earnings (P/E) ratio of around 20 and I think that it’s good value at those levels.
Stephen Wright does not own shares in The London Stock Exchange Group.
Harbour Energy
What it does: Harbour Energy is a UK-based oil production firm that operates across the North Sea, Asia, and Central America.
By Andrew Woods. In the past month, the shares in Harbour Energy (LSE:HBR) are up 25%. Recently, the company has been benefiting from higher oil prices, with Brent crude currently trading above $100 per barrel.
For the six months to 30 June, the business reported that pre-tax profits grew to $1.5bn, up from $120m for the same period in 2021. What’s more, its guidance range for full-year production increased from between 195,000 to 210,000 barrels, to between 200,000 to 210,000 barrels.
Furthermore, the firm stated that it was embarking on a $300m share buyback scheme, up $100m from previous announcements.
Financially, the company has a cash balance just under £600m, and total debt of £3bn. This debt would be something I’d like to see fall in coming months, because it appears to be quite large.
Overall, though, production is solid, and the broader economic situation seems to be favouring the company, hence it may have scope to grow.
Andrew Woods has no position in Harbour Energy.
