2 red hot growth stocks I would buy today

The following two UK stocks have been on fire, up a flaming hot 145% and 95% over the last five years. Both have reported results this week so can they carry on sizzling?

Segro grows

Investment trust Segro (LSE: SGRO) is a REIT specialising in logistics properties such as warehouses and distribution centres, with interests in the UK, France, Germany, Italy and Poland. Today it published its trading update for 1 July to 18 October, with CEO David Sleath hailing continued positive momentum, which has driven increased rental income across existing and new properties.

Segro completed new big box distribution warehouses for Yoox Net-A-Porter and Amazon in Italy, and a new urban parcel distribution warehouse for Fedex/TNT in Paris, as e-commerce continued to drive the business. Sleath said: “Investor appetite for prime warehouse assets remains strong, attracted by the structural drivers of occupier demand, limited supply and the prospect of rental growth particularly in the UK and in urban warehousing in Continental Europe.”

Inside the box

These trends in occupier and investor demand should support performance throughout 2017 and 2018, Sleath said. If today’s market response was subdued, that is because the investment community already knows the Segro story. It is booming but expensive, now trading at 28 times earnings.

However, this £5.4bn trust has been expensive for some time, and more than justified that valuation. It also yields a steady 2.97%. Strong lettings and development completions in the third quarter have helped shrink the group’s vacancy rate from 5.5% to 4.1% since 30 June.

To the bone

Management has also been concentrating on paying down debt, reducing annual interest costs by £10m through refinancing. City forecasters predict strong revenue growth, rising from a forecast £300m in 2017 to £351m in 2018, with earnings per share up 10% in 2018. By then, the yield is expected to have increased to 3.2%.

Wealth manager Rathbone Brothers (LSE: RAT) has also been in the money lately, its share price up 44% over the year, and 95% over five years. Financial advisory firms like this one are often seen as a geared play on healthy stock markets, and it has been a success on that score. 

High value

Yesterday it published its trading update for the three months ended 30 September to an upbeat response, although investors are also wary with the stock now trading at just over 20 times earnings. Highlights included a solid 2.5% rise in total funds to £37.5bn, against an increase of 0.8% in the FTSE 100 Index, and a more eye-catching 7% year-on-year rise in underlying net operating income to £70.5m. 

Rathbone now has £5bn under management in unit trusts, up 8.7% since June. Net inflows for the quarter were a record £342m, up from £170m a year ago. Net operating income of £8m for the quarter was up 19.4% on a year earlier.

Market men

Performance has been boosted by a steady rise in the FTSE 100, which ended the quarter at 7,373, up 6.9% from 6,899 one year earlier. Chief executive Philip Howell said investment markets remained relatively benign over the period, but of course, that may not continue.

City analysts are positive, forecasting earnings per share (EPS) growth of 5% this year, then 10% in 2018. The stock also offers a solid if unspectacular yield of 2.2%. Should you pay that valuation? The answer depends on where you think stock markets might go next. Rathbone looks pricey, but a correction could quickly change that.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.