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2 FTSE 250 growth stocks I have on my 2019 ISA shortlist

Most of my share picks these days tend to be based on dividends. But for a bit of diversification I’ve been investigating growth candidates as we head into a new annual ISA allowance.

I’ve been impressed by the performance of Hilton Food Group (LSE: HFG), which has just delivered another cracking set of full-year results.

The company, which specialises in food packaging, is unusual in including tonnage in its figures, with 2018 volumes up 13.5% to 344,784 tonnes. That brought in a revenue gain of 21.5%, leading to a 26.7% boost to pre-tax profit, and a 20.2% hike in earnings per share.

Expansion

The only slight downer for me was seeing 2017’s net cash of £25.4m turning into net debt of £26.8m, but there have been acquisitions during the year.

Chairman Robert Watson said: “In 2018, we continued to deliver on our strategic objectives to build a significantly bigger and more diversified business,” and that includes global expansion, with the development of Australian joint ventures playing a significant part. If that continues, a modest level of net debt won’t really worry me.

Hilton’s recent steady earnings growth is forecast to continue for the next couple of years, and that comes at a price. We’re looking at P/E multiples of 22 and 19 for 2019 and 2020, which some might see as high for such an unexciting business as food packaging.

But give me well-managed dullness every time — and a progressive dividend yielding around 2.5% adds an extra little attraction.

Favourite

I’m always wary of investing in companies to which I have a personal attraction, and that includes Greggs (LSE: GRG). But when I went there this morning to get my breakfast steak and cheese baguette, the place was crowded, as it typically is, while Subway a few doors away was, as usual, pretty much deserted.

Greggs has been growing its earnings for a number of years, bucking the trend of economic squeezes and belt-tightening. It goes to show that high-quality and modestly-priced high street food offerings will still attract the breakfast and lunch crowd even in tough times.

Another thing I like about Greggs is its marketing success in developing its brand. I think its vegan sausage roll promotion was masterful, as was its response to critics. And one of the things I look forward to most when we’re approaching Christmas is a Greggs’ Festive Bake.

Bright future

Expanding its offering to pre-packed frozen food market seems like a canny move too, and like my colleague Tezcan Gecgil, I can see Greggs’ management quality leading to a healthy long-term future for the company.

But if there’s a downside, it’s the share price. At P/E multiples of more than 20, it looks at least fully-valued to me, and I don’t see the same expansion possibilities (especially not internationally) as I expect from Hilton Foods.

Well-covered dividend yields of a little over 2% add some attraction. But with the share price having soared since mid-2018, I’m half expecting to see it faltering for much of 2019 as investors take profits.

Still, I have until April 2020 to use my next ISA allowance, so I’ll be watching where the Hilton Foods and Greggs share prices go.

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Alan Oscroft 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.