With the FTSE 100 recovering somewhat from its ?summer blues?, it feels as though investors are in a more ?risk-on? mood. Indeed, even the Bank of England is apparently starting to think that the UK economy is back on-track, with two of their committee voting in favour of interest rate rises this week.
Of course, growth stocks are out there, but they often come with a hefty price tag that means most (if not all) of their strong prospects are priced in. However, having…
With the FTSE 100 recovering somewhat from its ‘summer blues’, it feels as though investors are in a more ‘risk-on’ mood. Indeed, even the Bank of England is apparently starting to think that the UK economy is back on-track, with two of their committee voting in favour of interest rate rises this week.
Of course, growth stocks are out there, but they often come with a hefty price tag that means most (if not all) of their strong prospects are priced in. However, having scoured the FTSE 100, here are four top-quality growth prospects that don’t cost a fortune.
The last month has seen shares in ARM (LSE: ARM) rise by 12%, which is hugely impressive. It still means, though, that they are down 14% year-to-date, but the company seems to be on the right track following an upbeat update. Indeed, ARM is forecast to post earnings per share (EPS) growth of 10% this year and 23% next year. With shares having fallen over the last year, they now trade on a lower price to earnings (P/E) ratio of 33.1. This is clearly a lot higher than the FTSE 100’s P/E of 13.7, but when it is combined with a strong growth rate in earnings, it equates to a price to earnings growth (PEG) ratio of around 1.5. For a high-quality company such as ARM, this seems very reasonable.
Although the current year looks set to be something of a disappointment compared to recent years, Prudential (LSE: PRU) is still an attractive growth stock. Certainly, 5% growth in EPS (which is expected this year) is a fall from the 18% average of the last five years, but with the company’s bottom line set to increase by 12% next year, it appears as though Prudential will quickly get back on-track. With shares currently trading on a P/E of just 14.8, this equates to a PEG ratio of 1.2, which remains very enticing indeed.
Despite the price of oil fluctuating wildly, EasyJet (LSE: EZJ) is able to remain remarkably consistent when it comes to earnings growth. That’s why the last four years have seen the company post positive growth, while the next two are expected to continue that trend, as the company’s bottom line is due to increase by 12% in both years. Furthermore, EasyJet has a low valuation as well as strong, reliable growth prospects. Shares in the company trade on a P/E of just 11.8, which equates to a PEG ratio of just under the ‘sweet-spot’ of 1.0. This makes EasyJet hugely appealing right now.
With UK interest rates set to stay low for a good while, Sports Direct (LSE: SPD) seems to be well-placed to take advantage of buoyant consumer spending. The company is forecast to deliver yet more double-digit earnings growth over the next two years, with the bottom line due to increase by 23% this year and by 18% next year. Although it trades at a substantial premium to the FTSE 100’s P/E (18.4 versus 13.7 for the wider index), its strong growth potential mean that a PEG ratio of less than 1 is on offer. Therefore, alongside ARM, Prudential and EasyJet, Sports Direct seems to be a stock that offers growth at a great price.
Of course, they aren't the only companies that could have bright futures. That's why we've put together a free and without obligation guide to 5 shares that could beat the FTSE 100.
These 5 companies offer a potent mix of exciting future prospects and great valuations. As such, they could make a positive contribution to your portfolio and mean that 2014 and beyond are even better years for your investments.
Click here for your copy of the guide. It's completely free and comes without any further obligation.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended shares in ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.