With the UK stock market having significantly re-rated upwards during 2013, this could be the year where companies that are able to deliver above-average earnings growth are rewarded by investors in the form of improved sentiment, leading to higher share prices.
Indeed, with the UK economy having improved considerably over the last year, it could be argued that cyclical stocks may be the place to be, since they should generally offer the best growth prospects.
However, this may not be perfectly accurate, since one company that offers surprisingly good growth prospects in 2014 is United Utilities (LSE: UU) (NASDAQOTH: UUGRY.US). This may come as something of a shock to many Fools, but a north-west based water company is expected to increase earnings per share (EPS) by 11% in 2014.
This is considerably above that expected for the FTSE 100, which is anticipated to increase the bottom line by around 4-7% on average. Furthermore, United Utilities offers a vast amount of defensive qualities in addition to the aforementioned above-average EPS growth rate. In other words, investors in the stock could be getting growth plus defensive properties — the best of both worlds.
Indeed, the defensive merits of United Utilities are perhaps best highlighted by looking at its beta. It currently stands at just 0.64 and this means that (in theory) it should be a lot less volatile than the wider FTSE 100, with shares falling by 0.64% for every 1% fall in the wider index (in theory).
Of course, the same is true for a gain in the index, with United Utilities theoretically only gaining 0.64% for every 1% gain in the FTSE 100. However, it serves to highlight that United Utilities is clearly a defensive stock and yet its forecast growth rate is higher than many FTSE 100 listed consumer stocks that arguably should offer their investors higher EPS growth rates.
So, while United Utilities may not be the most exciting or interesting stock, it could help you retire early. It seems to offer considerable downside protection in case the market continues its January/February fall, but also provides above-average EPS growth forecasts for 2014, too.
Peter owns shares in United Utilities.