If you’re looking to generate strong long-term returns within your ISA, you might be thinking about investing in a selection of growth stocks. With interest rates at historic lows, a diversified portfolio of high quality growth stocks should outperform cash interest over the long term. With that in mind, here are three growth stocks that could provide strong returns in the future.
Priced to buy?
Whitbread (LSE: WTB) is the UK’s largest hospitality company and owns brands such as Costa Coffee and Premier Inn. That means it owns the largest coffeehouse in the UK and the second largest globally (behind Starbucks) as well as Britain’s biggest hotel brand with a focus on quality accommodation at affordable prices.
The success of both Costa and Premier has enabled Whitbread to grow earnings significantly over the last decade. If you’d bought the shares five years ago, your capital would have grown at an impressive 20%-plus per year.
However, in the last year the stock has fallen around 30% on concerns of slowing growth and a new CEO at the helm. Is this a buy opportunity? I believe so. Whitbread is now worth a look with its results last week revealing revenues up 12% in the last financial year. And the company said it would raise the dividend by 10%, a sign of management confidence.
With a forecast price-to-earnings (P/E) ratio of around 16 and a dividend yield of approximately 2.3%, the current share price could be an attractive entry point.
Chips with everything
ARM Holdings (LSE: ARM) is another company that has seen its share price fall recently on growth concerns. The world’s leading semiconductor intellectual property company by revenue develops tech that’s at the heart of so many digital electronic devices from smartphones, to tablets, sensors and servers. If you’ve bought a smartphone recently, there’s a good chance it contains ARM technology.
One of ARM’s key features is its highly efficient business model, designing the processor chips but then licensing the technology to manufacturers. This helps the company generate high cash flow with very little debt.
But is it a buy? Between 2010 and 2015, ARM’s earnings grew at an incredible CAGR of 29%. There may be genuine concerns about future smartphone growth, but ARM has plans to boost revenues through growth in networking, servers and the Internet of Things.
Q1 results recently revealed revenues up 22% on the year and with the share price around 20% below its 2011 highs, now could be a good time to take a look.
Good for growth
WPP (LSE: WPP) is the world’s largest advertising company by revenues has an impressive client list including Ford, HSBC and Procter & Gamble.
While much of its revenue is generated in the UK, Europe and US, it also has exposure to faster growing economies such as China and India and a strong foothold in digital advertising, so is well placed to take advantage of this high growth area.
WPP operates an active acquisition strategy, and this has helped the company to grow revenues strongly over the last five years. Shareholders who bought the stock five years ago would have been handsomely rewarded with total returns of almost 20% per year.
Q1 results last week delivered revenue growth of 10.5% (9% currency-neutral) and with key marketing opportunities on the horizon (Brazil Olympics, Euro 2016, US presidential elections), I believe WPP should continue to prosper.
