2 great growth stocks with stunning momentum

Royston Wild looks at two growth giants that could keep on surging.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Airplane sitting on a runway

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The electric share price ascent at Bodycote (LSE: BOY) received a further shot in the arm in late February, as signs of progress in its key markets sent investors into something of a frenzy.

The engineer has now added 29% in value since the start of 2016, and I believe it has what it takes to surpass April’s all-time tops of 836.5p per share.

At first glance Bodycote’s full-year release in February may not have appeared much to shout about. While revenues rose 5.9% to £600.6m, the thermal processor manufacturer saw like-for-like sales slump 3.5%.

Still, stock pickers cheered news that “excluding energy, revenues at constant exchange rates were flat, with momentum building throughout the year.” Revenues at constant currencies were actually 6% lower at the mid-year point, illustrating Bodycote’s robust sales improvement more recently.

Rosy outlook

At its aviation operations, the engineer noted that “civil aerospace in Western Europe was strong [in 2016], particularly in the second half,” and it advised that it expects “continued modest growth” from its commercial division in 2017.

Not only does the prospect of rising civil build rates bode well for Bodycote’s aerospace operations, but President Trump’s desire to rebuild the US military could provide its defence arm a huge dose of rocket fuel too.

Meanwhile, a resolute auto market also provides Bodycote with strong sales opportunities. The firm saw car and light truck revenues growth double to 6% in the second half of 2016 from 3% in the prior six months, thanks to a strong global market and new contract successes.

So while uncertainty surrounding the oil and gas markets could remain a headache for Bodycote’s energy operations (the firm expects “no near-term improvement in the oil & gas sector”), I believe the structural opportunities afforded by its other core markets, allied with ongoing efforts to improve its business mix, should deliver strong earnings growth.

The City expects Bodycote to generate bottom-line expansion of 11% and 7% in 2017 and 2018 alone. So while looking slightly toppy on paper, I reckon a forward P/E ratio of 22.1 times is fair value given the engineer’s robust long-term outlook.

A delicious pick

Investors have also been piling into Hilton Food Group (LSE: HFG) with gusto over recent weeks, the stock gaining 15% during the past month alone and hitting new record tops around 750p in the process.

Hilton was buoyed by a positive reaction to late March’s full-year financials, with a strong performance in the UK driving volumes and like-for-like revenues 7.4% and 7.2% higher respectively in 2016. And the business has also been a beneficiary of heavy sterling weakness over the past year (at actual currencies sales rose 12.8% last year).

With the City expecting revenues to keep on rising, Hilton’s hot growth story is anticipated to continue with bottom-line expansion of 7% and 6% in 2017 and 2018.

Such forecasts result in a high prospective P/E multiple of 20.3 times. But I believe the huge investment Hilton is making to expand its international footprint should help deliver meaty earnings expansion and help it merit such a premium. For instance, work is due to start later this year on its most expensive investment to date, the colossal Queensland facility. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Bodycote. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »