With the FTSE 100 hitting a record high this week, finding attractive growth stocks may seem more challenging. After all, investors are more bullish right now than they have been for some time. This means valuations could be prohibitively expensive – even for the very best growth shares. However, there are a number of shares which could still be worth buying for the long term. Below are two stocks which appear to offer high growth potential at a very reasonable price.
A changing outlook
The outlook for commodity prices has improved dramatically in recent weeks. A weaker dollar has meant their prices have pushed higher, and this has caused shares in Rio Tinto (LSE: RIO) to move almost 10% up since the start of the year.
Despite this, more growth could lie ahead for the mining company. It is forecast to record a rise in its bottom line of 51% in the current year. Since it trades on a price-to-earnings growth (PEG) ratio of only 0.2, there seems to be significant upside ahead. Although the prospects for iron ore remain somewhat uncertain, government stimulus in China has helped to stabilise its economic performance. Therefore, the outlook for the steel-making ingredient remains upbeat.
As well as a low valuation and rising bottom line, Rio Tinto also offers enticing income potential. It currently yields 5.5% and has a sensible dividend strategy which is linked to profitability rather than being progressive. As such, if commodity prices keep moving higher, the company could become an increasingly viable option for income-seeking investors. Certainly, its outlook is unclear, but with such a low valuation it appears to offer a wide margin of safety.
Given the difficulties which Standard Chartered (LSE: STAN) experienced in recent years, its outlook is hugely positive. After posting a loss in 2015, it returned to profitability last year. It is now forecast to increase pre-tax profit from £327m last year to around £3.1bn in 2018. This represents a staggering rate of growth and with the bank’s shares trading on a PEG ratio of 0.3, the market does not yet seem to have priced in its potential.
Certainly, the turnaround is not yet complete. Standard Chartered needs to deliver on its upbeat guidance. However, following a reorganisation and a renewed focus on compliance following regulatory issues, its business model appears to be more stable and capable of yielding improved results. And since it has such a wide margin of safety included in its valuation, it appears to offer a highly enticing risk/reward ratio.
A focus on Asia could benefit the company’s bottom line in the long run. Therefore, while other banking shares are exposed to the potential dangers of Brexit, Standard Chartered may prove to be a top performer relative to its sector. Given the scope for a reinstatement of dividends this year, management confidence in its future seems high. Therefore, buying it now could yield FTSE 100-beating total returns in the long run.
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Peter Stephens owns shares of Rio Tinto and Standard Chartered. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.