The FTSE 100 and FTSE 250 boast some brilliant growth stocks. Better still, many are cheap, having been beaten down by recent economic uncertainty.
While the high-flying FTSE 100 now trades on a price-to-earnings (P/E) ratio of around 19.5, it’s still possible to find amazing pockets of value, with P/Es on individual stocks as low as 7 or 8.
I like targeting growth stocks that have been through a troubled period. It’s my opportunity to pick them up at a reduced price and benefit when they recover. However, just because a stock looks cheap doesn’t mean it’s good value. Turning a company around takes time. Patience is required.
FTSE 100 value play
I’ve learned that the hard way with one of the cheapest stocks on the FTSE 100, JD Sports Fashion. I bought the shares following a poor Christmas 2023 trading season, but sales underwhelmed in Christmas 2024 too.
I’ve repeatedly averaged down on the self-styled ‘King of Trainers’, tempted by its super-low P/E of 6.9, but until consumers start spending more freely, I’ll have to grit my teeth and hold on.
Budget carrier easyJet, which I don’t own, is another dirt-cheap underperformer. Its shares are flat over the last year and down 25% over five, giving a P/E of 7.37. Again, it needs consumers to start spending. JD Sports and easyJet are worth considering, but only for investors willing to hold on for brighter skies.
Bunzl looks a bargain to me
Last year, I snapped up distributing and outsourcing group Bunzl (LSE: BNZL), a stock I’d admired for years. It has a brilliant track record of consistently increasing dividends that stretches back more than 30 years, and grown rapidly through acquisitions. Then in April it suffered its worst sell-off in a decade after issuing a profit warning, amid challenging conditions in North America. I decided that gave me a rare chance to snap up the stock at a reduced price, then sit back and wait for it to recover. I spend my investment life waiting for moments like these.
The Bunzl share price has now plunged 38% over the last year, a big drop for what I’ve always considered an old reliable. I’ve snapped up its shares on three separate occasions and can’t rule out going back a fourth time.
On 17 December, Bunzl forecast full-year revenues should grow 2%-3% at constant exchange rates, but remain flat at actual rates. Operating margins are being squeezed by rising costs, but the P/E of 10.55 still looks temptingly low to me, while the trailing yield has climbed to 3.6%. Again, Bunzl needs the global economy to fire up. But I think it’s still worth considering for investors happy to bide their time.
Now I’m spreading my wings to the FTSE 250, which has loads of dirt cheap growth stocks. Specialist lender OSB Group trades on a P/E of 7.5 (and yields a handsome 5.5%). Bakery chain Greggs has seen its P/E halve to 10.8 after a slowdown in sales growth, while trading platform IG Group tempts with a 11.4. I’ll need to work out exactly what’s going on before I buy any of them.
The UK market’s back in favour, but there’s still plenty of value out there, and I’m not going to waste this opportunity.
