My top two growth stocks have just taken a beating, and I won’t deny it hurts. Both plunged 25% in the last month and are the biggest fallers on the FTSE 100 over that short period. So what do I do?
The first is the private equity and infrastructure specialist 3i Group (LSE: III). Until recently, it was one of my standout investments, more than doubling my money in the two-and-a-bit years after I added it to my SIPP.
3i Group shares slump
Since 1945, 3i has built a strong track record of buying underperforming companies, scrubbing them up and selling at a profit. It worked wonders for decades. The shares are still up 200% over five years, but now they’re down 11% over 12 months. Personally, I’m still up 48%, but that’s less than it was.
I was starting to feel uneasy about 3i. Much of the excitement came from one stunningly successful holding, European retailer Action. It’s opened thousands of stores across the continent and has a new growth market in Switzerland, but now accounts for almost three-quarters of 3i’s total assets. That is a lot of concentration risk.
On 13 October the group warned sales growth at Action may fall short of forecasts due to a slowdown in France. The rest of the business is trading well but that was all it took to spark a heavy sell-off.
I have no plans to sell 3i Group. I buy shares with a long-term view and over that time frame, it remains attractive. In fact, I topped up my position last week, and two senior directors did the same, investing far bigger sums than me. I’m now heavily exposed by my modest standards, so I’ll stop here. Action’s monster growth has to slow at some point and the group needs to find new opportunities. Yet I still think it’s worth considering for long-sighted investors.
JD Sports has tripped up
My second falling favourite was struggling rather than thriving when I bought it in January 2024. JD Sports Fashion (LSE: JD.) looked absurdly cheap with a price-to-earnings ratio of around 7.5, and I expected to benefit from a robut share price recovery once trading improved.
The rebound hasn’t come yet. Consumers are still under severe strain across the UK, Europe and the US. On 20 November the board issued another profit warning, blaming rising unemployment and softer spending. Should I take advantage and buy more?
I’ve already averaged down on three occasions since my original purchase, but now I’m wary. JD Sports’ core market is younger people, which spells trouble as youth unemployment climbs. Rapid advances in artificial intelligence may hurt their long-term job prospects and squeeze their spending power harder.
The JD Sports share price is even cheaper now. The P/E stands at 5.95 but a strong Christmas sales period could lift the mood. Contrarian investors may still consider the stock but I’ve decided to hold my position and look elsewhere for recovery plays.
Both growth stocks face different challenges but remain central to my long-term plan. I believe the 3i dip is a great long-term buying opportunity for a share that had outrun itself, which is why I dived in. JD Sports should recover one day but for now I’m sticking rather than twisting.
