The Motley Fool

Have £5,000 to invest? I’d buy these 2 FTSE 100 growth stocks

The FTSE 100 is often associated with huge, mature businesses that pay dividends but deliver very little growth. Today I want to get away from that cliché and look at two terrific growth stocks that have made it into the blue-chip index.

Both of my picks have delivered double-digit share price gains over the last two years — the FTSE 100 has fallen by around 15% over the same period.

Growth stock #1: a pharma play

Hikma Pharmaceuticals (LSE: HIK) has been a top performer so far this year, rising by around 20% in five months. Although pharmaceutical firms have benefited from extra investor interest due to the coronavirus pandemic, I believe Hikma is a genuine growth stock, with solid profits and good prospects.

The group’s business is centred around producing injectable medicines and generic versions of branded products that have lost their patent protection. It’s a very profitable business, with an operating margin of 24% in 2019.

Cash generation is also strong and unlike some larger pharma groups, Hikma doesn’t rely on borrowed cash. Net debt was just $242m at the end of 2019, giving a leverage multiple of just 0.4x EBITDA. In plain English, that’s very low.

Why I’d buy

City forecasts suggest that Hikma’s profits will rise by around 8% this year, with a 10% increase pencilled in for 2021.

The firm’s shares are currently trading close to all-time highs, leaving them with a 2020 forecast price/earnings ratio of around 18. That may not seem cheap, but it’s actually well below the UK pharmaceutical sector average P/E of 30.

Profits are expected to rise by a further 10% in 2021. I see the firm as a growth stock to buy at current levels.

Growth stock #2: my bet on UK property

The UK housing market might not seem like the safest investment at the moment. But I think my next pick is an essential service that estate agents can’t live without — even in a downturn.

Property listing website Rightmove (LSE: RMV) dominates the UK market, leaving rivals Zoopla and OnTheMarket.com trailing in the distance. According to the firm, it had a market share of over 75% in 2019, based on the time spent browsing the top four UK property websites.

This dominance gives Rightmove a lot of pricing power. The company generated an operating profit of £214m on revenue of £289m last year. That’s equivalent to a profit margin of 74%. It’s not hard to see why this has been such a successful growth stock — the Rightmove share price has risen by nearly 40% over the last 18 months.

A long-term winner?

Estate agents tend to complain about Rightmove’s pricing. Some big estate agency groups even clubbed together to launch a rival, OnTheMarket.com.

I have some sympathy with the estate agents’ complaints. But Rightmove is expanding steadily into the letting sector and now also lists new homes. In reality, I believe this website will continue to be an essential part of most estate agents’ businesses.

Rightmove has cut its fees by 75% for the period from April to July this year. 2020 profits will be down. But analysts expect earnings to bounce back next year — a view I share.

The latest forecasts put Rightmove stock on a price/earnings ratio of 30 for 2021. For such a dominant and profitable business, I think this could be a good buy.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals and Rightmove. 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.