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2 super growth stocks I’d buy with £2,000 today

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FTSE 250 pub chain JD Wetherspoon (LSE: JDW) is in the news Wednesday, after founder and Brexit campaigner Tim Martin announced that it is to stop selling champagne.

I doubt many regulars are likely to notice, but that cheaper fizz prosecco is also going, along with a load of other EU-produced booze. British wheat beer and alcohol-free beer are set to replace current German products, all as part of Mr Martin’s plans to rid the pubs of nasty EU wares.

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To be honest, it all seems a bit silly to me. And while prosecco and weissbier are popular products by those names, I can’t see it being a particularly good move — for my money, a business should sell its customers what they want rather than trying to dictate their tastes.

Still, there should at least be some PR from it, and I doubt it will harm what looks to me like an attractive investment in the long term.

Beating the odds

While the pubs sector has been struggling and competitors have been selling off pubs and seeing earnings falling, JD Wetherspoon has been enjoying steadily-rising earnings. EPS climbed from 46.2p in 2013 to 70.8p last year, and though there’s a dip forecast for this year, analysts expect 75.6p by 2020.

We look set for a few years of slower expansion as the company concentrates on buying freeholds and refurbishing existing sites — and judging by a couple of outlets near me, the latter is very welcome. This retrenchment phase might explain why the dividend hasn’t been lifted for years and is now covered nearly six times by earnings, and it is causing debt to rise.

I’m a little concerned with P/E multiples of 16-18, but I think I’m seeing the makings of a long-term dividend cash cow here, even if yields are currently only around 1%.

Software growth

When I looked at full-year results from dotDigital Group (LSE: DOTD) in February, I liked what I saw. The company provides software for the digital marketing business, and you don’t need me to tell you how important that is these days. And it counts technology giant Microsoft among its customers.

The company came to my attention again recently when it popped up in my growth share screen, which looks for stocks with attractive growth characteristics and not troubled by debt.

We’ve seen earnings per share more than double between 2013 and 2017, and analysts are predicting 25% growth this year followed by 29% next. That hasn’t gone unnoticed, and the share price has soared by 370% over the past five years to reach 70p (while the FTSE 100 has gained just 26%).

Off the boil?

But the shares have been considerably higher, peaking at 105p in December. I can’t help thinking we’re looking at a typical growth share phase here, with investors following each other in the upwards climb which results in a stretched growth valuation. And a few canny shareholders cashing in some profits can trigger a needed correction.

We’re looking at a PEG multiple of one for this year, which isn’t a screaming growth indicator — though it doesn’t, to my mind, shout overvaluation. And if forecasts prove accurate, 2019 would see a P/E of around 18.5 and a low PEG of 0.6. Both of those look to me like strong indicators, and coupled with those recent results, I like the look of dotDigital shares.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. 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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