I’m searching for the best growth shares to buy when I next have spare cash to invest. And I think the following two contenders could be too cheap for me to miss.
Babcock International
UK defence shares are packed with significant long-term potential. But following the outbreak of war in Ukraine, many of these companies now look quite expensive compared with previous levels.
This is not the case with Babcock International Group (LSE:BAB). With a forward price-to-earnings (P/E) ratio of 12.4 times, it trades at a healthy discount to many of its industry peers. This includes FTSE 100-listed BAE Systems, and US stocks Northrop Grumman, Lockheed Martin and RTX Corporation.
Their earnings multiples are shown in the table below.
| Company | Prospective P/E ratio |
|---|---|
| BAE Systems | 18.8 times |
| Northrop Grumman | 17.6 times |
| Lockheed Martin | 17.7 times |
| RTX Corporation | 18.7 times |
Like those businesses, Babcock is enjoying a steady increase in orders and sales as Western nations rebuild their arsenals. Despite recent disposals, revenues improved around 2% year on year to £2.2bn in the six months to September, while its contract backlog remained strong at £9.6bn (versus £9.9bn a year earlier).
Babcock’s expected to release more good news when it reports full-year results this month. As a result, City analysts expect earnings to rise 13% in the current financial period (to March 2025). Growth is tipped to improve to 14% in fiscal 2026 too.
Lumpy contract timings are a constant threat to earnings forecasts for defence companies. Any such scenario could pull Babcock’s shares lower again.
But on balance, I still find its investment case very attractive. And what’s more, the cheapness of its shares could help limit any price falls if news flow disappoints.
Centamin
I’m also considering adding mining company Centamin (LSE:CEY) shares to my portfolio. Gold prices have soared in recent months, and in the current macroeconomic and geopolitical environment they look like they could have much further to go.
I can capitalise on a rising metal price by buying an exchange-traded fund (ETF) that tracks price movements. But I can also receive a passive income by buying a dividend-paying share instead.
This is where Centamin comes in. Dividends are never guaranteed, of course. But based on current payout forecasts, the firm yields a healthy 3.1%. This is roughly in line with the FTSE 250 average.
Commodities values can be extremely volatile. So I wouldn’t just buy the African miner for the short term, as its share price could collapse if gold reverses.
This is why I’m also considering buying it to diversify my portfolio, and protect it if economic conditions worsen and broader financial markets sink. Safe-haven demand for precious metals tends to spike in such circumstances.
And at current prices Centamin looks like a bargain. City analysts think earnings will soar 229% in 2024, leaving its shares on a price-to-earnings (PEG) ratio of below 0.1.
Any reading below 1 suggests that a share is undervalued.
