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2 growth stocks I think can beat the FTSE 100 in 2020

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Shares in language translation technology firm SDL (LSE: SDL) gained 10% Tuesday morning, on first-half results. Revenue rose by 28%, with adjusted operating profit up 34%. Adjusted earnings per share came in 14% ahead, pretty much in line with current forecasts.

Chief executive Adolfo Hernandez said: “We enter the traditionally stronger second half with good sales momentum and a healthy sales pipeline. This, alongside the actions that we are taking on productivity, gives us confidence of delivering improved profitability for the full year, in line with management expectations.”

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FTSE 250 growth

My colleague Roland Head was upbeat about SDL’s prospects a year ago, but offered a caution, saying: “I can see long-term growth potential for SDL’s business. But I think it’s fair to say that some of this is already priced into the stock.

The shares were on a P/E of close to 23 at the time. But since then, the price has been flat overall (though a bit volatile along the way). With a 23% rise in EPS in 2018 under its belt, SDL is now looking at a forward P/E for its shares of a more modest 17, dropping to 15 on 2020 forecasts.

The market for computer-assisted language translation and related services is strong and growing, and SDL is one of the market leaders. And it’s offering technology-based solutions that should be scalable and cash-generative.

Roland suggested this is one to top up during any dips in share price volatility, and I agree. I think SDL is good value now, and I can see a winning 2020 ahead of it.

FTSE 100 growth

Forecasts suggested InterContinental Hotels Group (LSE: IHG) will have seen earnings per share doubling between 2014 and 2019. And the shares have gone along with that, gaining 85% over the past five years. First-half results reflect the current year is working out as expected, with revenue up 8%, operating profit up 14%, and basic EPS up 36%.

Dividends might have gone unnoticed, as this year’s is only set to provide a yield of an unexciting 2%. But that conceals very strongly progressive payments which will have been lifted 65% since 2014, if current forecasts are correct — and a 10% hike to the interim dividend supports that.

Chief executive Keith Barr reckons the firm can “achieve industry leading, sustainable net system size growth over the medium-term.

I do think the company is a solid long-term investment with its top brands including Holiday Inn and Crowne Plaza, and the fact that its franchise model seems cost-effective appeals to me too.

Cautions

But a couple of things hold me back from wanting to invest right now. One is the shares are on a relatively tall growth P/E multiple of above 21, and that’s at a time when earnings growth is predicted to slow. Analysts are indicating around 8% per year going forward, down from more than twice that level over the past couple of years.

The other is debt, which rose 30% in H1 to $2,847m. The share price has deflated a little over the past week, and I wouldn’t be surprised to see growth investors taking profits over the short term. But I can see buying opportunities coming up, and  InterContinental is another I think has a good chance of beating the market in 2020.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels 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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