10-year 20% annual returns! 2 stocks to buy for my portfolio

Oliver Rodzianko only wants to know which are the best stocks to buy in Britain. He says these two have some of the best value and growth prospects.

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Key Points

  • JD Sports, a leading British sportswear retailer, has seen a 22% compound annual growth rate over the past decade but could face challenges adapting to AI-enhanced online shopping.
  • Ashtead offers equipment rental services and appears fairly valued with a forecasted 10% annual earnings growth, yet concerns over its debt-heavy balance sheet persist.
  • My preference leans towards JD Sports for its significant undervaluation and potential for an 80% gain, despite Ashtead's solid growth prospects.

When searching for the best British investments I could add to my portfolio, I wanted to find two stocks to buy that had annual returns of more than 20% over a 10-year timescale. There were only a few to choose from, but of the nine I knuckled down, here are the ones that stood out.

Britain’s biggest sportswear retailer

My first pick is a very well-known British sportswear and fashionwear retailer. It’s also one that I this is selling at a significant discount as I write.

Consider that JD Sports (LSE:JD) has a share price that is down over 50% from its all-time high.

Also, over the last decade the share’s compound annual growth rate is 22%. That’s massive, and I think great returns could continue.

In its most recent fiscal year, the firm has been in a bit of a slump in terms of earnings growth. But the next fiscal year looks way more promising, with growth set to resume considerably. While the growth is expected to be slower than in the past, it still looks like it will be moving onward and upward over the long term.

However, I think it’s also prudent to be aware that the retail markets are still changing quite dramatically. Online shopping has already proliferated. But as this becomes personalised and hassle-free with AI assistance, I wonder whether JD Sports will harness this effectively. It certainly has the brand power to do it well, but the risk is that it fails to adapt.

A lesser-known equipment rental business

Then, there’s Ashtead (LSE:AHT), which operates under the Sunbelt Rentals brand, offering construction, industrial, and general equipment for rent.

These shares are down in price by 17.5% from their all-time high, and they look fairly valued based on my discounted cash flow analysis. That’s a calculation that ascertains the value of a business from forecasted earnings.

My projected compound annual earnings growth rate over the next 10 years for the business is 10%. Analysts have a slightly lower estimate that over the next four years, the company’s earnings will grow at around 8.5% per year.

Considering that growth is good and the company is definitely not overvalued in my opinion, I think it could make a spot in my portfolio.

However, one big risk with this company is the balance sheet, which I’m not too fond of. With much more debt on the books than equity, I’m concerned that the business could struggle to finance operational upgrades. In turn, that could affect future revenue and earnings growth.

Which one do I like best?

If I had to choose just one of these to buy right now, it would undoubtedly be JD Sports. I consider it to be much better value than Ashtead.

Nonetheless, my price target for JD Sports shares is £2 by the end of its fiscal 2024. Currently, they are trading at £1.11. That means there could be an 80% gain in a short time frame, if my analysis is correct. The price at its all-time high was £2.34.

I’m leaving Ashtead to one side for now, but I might buy JD Sports shares over the next few months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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