2 ‘hot’ growth stocks I’d buy before it’s too late

Bilaal Mohamed explains why investors should consider these growth stocks before it’s too late.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the start of the new year I picked out Hikma Pharmaceuticals (LSE: HIK) as one of the blue-chip firms I expected to post healthy gains during the course of 2017. Since then the FTSE 100 group has announced its full-year results for 2016, giving further clues as to what the future might hold for this fast-growing business.

So am I still bullish on Hikma’s long-term prospects, or has the recent update changed my mind?

Mixed bag

Last month the multinational group reported its preliminary results for 2016, with a mixed bag of numbers prompting an equally mixed reaction from the City. The drug-maker reported an impressive 35% rise in group revenue to $1.95bn, compared to $1.44bn in 2015, equating to a 39% improvement on a constant currency basis.

However, operating profit came in significantly lower at $302m, a 21% slide from the previous year, and 9% down at constant currency. But this was mainly due to exceptional items such as acquisition costs, goodwill amortisation and inventory adjustments. Personally, I’m not overly concerned with the one-off setbacks.

West-Ward Columbus

Overall, Hikma has made significant strategic progress over the past year, with the acquisition of West-Ward Columbus transforming its generics business and indeed the group as a whole. The acquisition is the largest Hikma has made to date and although there have been issues, the integration is now progressing well, with good cost synergies expected.

I think that as a generics manufacturer, Hikma will continue to benefit from consumer demand for cheaper drugs, especially in the fast-growing Middle East & North Africa market. The shares might not look cheap at 18 times forecast earnings for the current year, but this falls to a more reasonable 14 times by 2019, thanks to continued double-digit growth.

A good time to buy

Another London-listed firm that I’ve been bullish about for some time is RPC Group (LSE: RPC). The Rushden-based plastics company has just completed its financial year ended 31 March, and has already indicated that it anticipates full-year revenue to be significantly ahead of last year.

Annual results won’t be published until 7 June, but the group’s management is confident that contributions from both acquisitions and continued organic growth will bring about a much improved performance for fiscal 2017. RPC has made several acquisitions during the course of 2016, and has more in the pipeline. The larger acquisitions of British Polythene Industries (BPI) and Global Closure Systems (GCS) have integrated well and are already performing ahead of expectations.

Underlying earnings are expected to almost double over the next three years and the shares currently trade on a very attractive valuation. The fairly modest P/E ratio of 13.6 drops to just 10.8 by FY 2019, which in my opinion undervalues the business. The shares have pulled back sharply since the start of the year and perhaps this could be a good time to load up.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals and RPC 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.

More on Investing Articles

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »

Investing Articles

As like-for-like sales continue to fall, is the B&M European Value Retail SA (LSE:BME) share price a bargain?

B&M European Value Retail is known for its low prices, but could growing like-for-like sales make the share price the…

Read more »

Illustration of flames over a black background
Investing Articles

After rocketing 232% in a year can this red-hot FTSE 250 stock keep going gangbusters?

Harvey Jones says this FTSE 250 stock's on fire after smashing the index over the last year. It's cheaper than…

Read more »

Investing Articles

The Burberry share price has jumped 15% this morning! Time to pile in?

Harvey Jones was thrilled to wake up this morning and find the Burberry share price flying, but he's still sitting…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

At a bargain-basement price now, is it time for me to buy this 8%-yielding FTSE 250 media stock?

Shares in this FTSE 250 broadcasting firm continued their recent decline after the latest results release, leaving them looking an…

Read more »

Investing For Beginners

Here’s what a landmark legal ruling could mean for the Lloyds share price

Jon Smith mulls over whether issues with historical motor finance commissions could spell trouble for the Lloyds share price into…

Read more »