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A FTSE 100 growth stock I’m avoiding like the plague

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City predictions that WM Morrison Supermarkets (LSE: MRW) will continue its mini profits revival are not enough to convince me to invest today, I’m afraid.

It finally bounced back from four successive annual earnings dips in the year to January 2017, a year in which it punched a 40% bottom-line improvement. And the number crunchers are expecting further double-digit growth in fiscal 2018, a 12% rise currently being touted, as well as a 7% earnings advance in fiscal 2019.

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But the road to sustained profits growth is littered with obstacles. The disruptive influences of Aldi and Lidl have long been a problem for Morrisons and the rest of the so-called Big Four supermarkets, and with inflation on the gallop and millions of Britons’ salaries still stagnating, the market share of the discounters is likely to keep on surging.

The ambitious expansion schemes of these firms is exacerbating the problem still further as Lidl UK head Christian Härtnagel is aiming to open one new store every week in the coming years, he told The Telegraph during the summer.

Problems at its bricks-and-mortar stores are not the only problem though, with Morrisons also facing an uphill battle to keep sales generated in the critical online marketplace on an upward slant. Amazon has been steadily upping the attack in this most competitive retail segment, while the rest of the established operators have also been spending a fortune to improve their cyberspace operations.

Morrisons is likely to have to continue on a path of earnings-destructive price slashing to stop sales from plummeting again, a dangerous situation given that the cost of filling its shelves is also on the rise.

And as such there is far too much risk facing current broker forecasts, a situation that is not reflected by a slightly-toppy forward P/E ratio of 17.7 times.

International giant

I reckon those seeking solid earnings growth would be much better off stashing the cash in Prudential (LSE: PRU).

The life insurance giant has proven its mettle as a dependable earnings generator, and City brokers are expecting profits growth to keep rolling for some time yet. A 6% rise is forecast for 2017, and another 9% rise is anticipated for next year.

It is quite easy to see why the Square Mile is so bullish when it comes to Prudential’s profits possibilities. Particularly exciting is the firm’s strong foothold in Asia where booming population growth and rising personal income levels drive demand for insurance and savings products. The FTSE 100 business saw new business profit in these territories leap 15% in January-September to £1.62bn.

However, Asia is far from the be-all-and-end-all for Prudential as business continues to roll in from other parts of the globe. In the US, the business is also benefitting from the investment needs of the so-called baby boomer generation, a trend that drove new business profit 17% higher in the first nine months of 2017, to £619m.

I do not believe Prudential’s brilliant long-term prospects are reflected by a low forward P/E ratio of 13.5 times. But the Footsie giant’s exceptional growth possibilities are not the only reason to invest today as dividends also appear on course to keep skipping northwards.

In 2016 The Pru is anticipated to pay a 47.8p per share dividend, up from 43.5p last year, and this is expected to rise again to 51.6p in 2018. These projections yield a healthy 2.6% and 2.8% respectively.

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Royston Wild has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

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