I’ll aim for a million by adding this world-class growth stock to my portfolio

Harvey Jones is looking to inject some excitement into his portfolio by purchasing a top growth stock and thinks this may be the place to start.

| More on:
Investor looking at stock graph on a tablet with their finger hovering over the Buy button

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For the sake of balance, I need to add some high growth stocks to my portfolio of mostly FTSE 100 blue-chips.

If I’m going to step up my efforts to build a million-pound retirement pot, I need to take a few more risks. So now I’m scouring the FTSE 250 in search of action. This opportunity immediately popped up.

I think the defence industry is attractive right now, as geopolitical insecurity grows. Yet FTSE 100 defence giant BAE Systems looks fully valued to me. I hold the stock but won’t buy more today. FTSE 250-listed aerospace, defence and security specialist Chemring Group (LSE: CGY) excites me more.

FTSE 250 opportunity

Given today’s global insecurity, I’d expect the Chemring share price to be flying. And it is, up 32.38% over the last year. That’s more than double the 15.46% return on the FTSE 250 as a whole. Over five years, it’s up 96.35%.

On 4 June, Chemring reported a 39% increase in its order book to a record £1.04bn. That’s the highest in its history due to what it calls the “fundamental rearmament upcycle”. However, underlying operating profit fell 5% to £25m after adverse weather hit its Tennessee manufacturing sites.

As a key NATO supplier, the group is nicely placed. Unfortunately, peace isn’t suddenly going to break out. European nations will have to rearm as Russia menaces again. The pressure will grow if Donald Trump is elected US president, and demands the continent stumps up more for its security.

Chemring will get a further boost if economic growth revives, allowing governments to spend more on defence. In 2023, Chemring posted full-year revenues of £472.6m. CEO Michael Ord is targeting £1bn by the end of the decade.

Ord reckons the group’s long-term growth prospects are strong as its leading technological offerings have erected high barriers to entry.

Net debt did increase from £25m to £75.3m in the first half, but that was due to the board’s decision to invest more in the company. Net debt to underlying EBITDA is comfortably below the board’s internal target.

Dividend income too

The stock doesn’t look too expensive today, trading at 18.4 times training earnings. There are also dividends to be had. The forecast yield of 2.1% doesn’t look amazing, but drill down and it’s a different story.

Over the last three years, the board has hiked the dividend per share by 23.08%, 18.75% and 21.05%. Let’s see what the chart says.

Chart by TradingView

My main concern is that I don’t like buying a company after it’s had a good run. It would have been far better to buy Chemring before Russia invaded Ukraine. Return on equity has been pretty solid, hitting 12.86% a couple of years ago. However, it has since dipped to 8.31%. Again, let’s look at the chart.

Chart by TradingView

Yet I think there’s an exciting opportunity here, and given the state of the world, I’m not sure it’s worth hanging on for a lower entry point. I’ll buy Chemring as soon as I have cash to spare.

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.

Harvey Jones has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems. 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.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should I invest today or wait for a stock market crash?

Does it make sense to keep buying shares or save cash for a stock market crash? Our writer thinks there's…

Read more »

Investing Articles

Is this the beginning of the end for the rising Nvidia share price?

Jon Smith explains why the Nvidia share price dropped sharply last week and talks through the key events coming up…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£11,000 of Legal & General shares could make me £14,583 a year in passive income!

A high passive income can be generated from a much smaller investment in Legal & General shares if the dividends…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

2 of the widest moats in the FTSE 100

A durable competitive advantage is key to a good investment. And Stephen Wright thinks a couple of FTSE 100 firms…

Read more »

Investing Articles

A 9.6% yield but down 14%! Should I consider this FTSE gem for my dividend portfolio?

There are several things to consider when looking for FTSE shares with dividend potential. Here, our writer outlines his evaluation…

Read more »

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Will the 5.6% BT Group dividend yield grow in 2024?

Zaven Boyrazian explores whether BT Group can continue hiking its dividend and if the telecoms giant belongs in his income…

Read more »

Investing Articles

FTSE 100’s near a 52-week high, but this stock’s still dirt cheap!

The FTSE 100's on the rise, but not all stocks have been so fortunate. Here’s one company that got left…

Read more »