ISA season: 2 monster growth stocks for the new tax year

With the start of the new tax year, I’m sure many investors will be looking out for new investments to make the most of their annual £20,000 ISA allowance. So to help point you in the right direction, I’m taking a closer look at two under-the-radar stocks.

Strong fundamentals

TI Fluid Systems (LSE: TIFS) is one stock which you may have never heard of, but I believe it deserves far more attention from the investment community because of its leading global market positioning.

The company, which designs and manufactures automotive fluid storage, carrying and delivery systems, has a global manufacturing presence and a long-standing technical expertise that earns it strong global market positions in the key markets in which it operates in. Based on production volumes in 2016, the company had an estimated market share of 35% in the brake and fuel line market, in addition to a 15% share in the plastic fuel tank market

Amid favourable tailwinds, most notably rising global light vehicle production, TI Fluid Systems’ revenues and profits have grown robustly. Most recently, in 2017, revenue increased by 4.2% to €3.49bn, while profit for the year climbed to €115.2m, up from €43.9m a year earlier, after it was partially boosted by a lower tax expense.

Undemanding valuations

Going forward, City analysts are highly excited. Adjusted earnings per share are expected to rise by 62% this year to 36.9p, giving it a forward P/E of only 6.8. And out of five analysts covering the stock, three have ‘strong buy’ recommendations, while the other two are ‘holds’.

However, one concern in the longer term is the growing adoption of electric vehicles. While TI Fluid Systems claims it is well placed to capitalise on growing demand for thermal management systems needed in electric car batteries, it remains to be seen whether the company can more than offset the loss from its Fuel Tank and Delivery Systems business. This currently accounts for no less than 40% of its total revenues.

Earnings growth

Looking elsewhere, Croydon-based Zotefoams (LSE: ZTF), a materials technology company which manufactures high-performance polymer foams, also looks poised to deliver impressive earnings growth in the near term.

City analysts expect Zotefoams to deliver an increase in adjusted EPS of 10% this year, with a further increase of 25% pencilled in for 2019. This puts its shares at 34.6 times this year’s expected earnings (or 27.7 times its forecast earnings in 2019) — a substantial premium to the market.

However, quality always comes at a price. On the upside, Zotefoam’s longer-term fundamentals are in really good shape. The company is seeing positive trading momentum, as recent results showed continued organic revenue growth across its key markets. It also recently completed its major US expansion investment, which would boost its production capacity in anticipation of a ramp-up in sales of high performance foams.

Opportunities opening up

News in December that the company secured a partnership with Nike to exclusively develop and manufacture foam innovations for a new generation of high-performance athletic products sent shares in Zotefoams sharply higher. They’re now worth 40% more than before the announcement, reflecting investor belief in the long-term growth prospects of its higher-margin high-performance materials.

Given these opportunities opening up for the business and the company’s unique IP strength, I reckon Zotefoams is on course to deliver robust earnings growth for a number of years to come.

Capital Gains

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Jack Tang has no position in any 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.