2 bargain basement growth stocks I’d buy in May

These two shares appear to be undervalued given their outlooks.

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Finding dirt-cheap stocks is never a particularly easy task. Markets tend to be relatively efficient and so the forecasts for all stocks tend to be priced-in to their valuations. However, there are occasions where opportunities exist to buy shares with high growth prospects at low prices. Here are two prime examples which could be worthy of a closer look.

Favourable trading conditions

Friday’s update from wealth manager Charles Stanley (LSE: CAY) showed that it is making encouraging progress in favourable operating conditions. Funds under management and administration increased by 5.7% versus the end of 2016, and were 17.1% higher than a year prior. Growth was also seen in the company’s discretionary and execution-only funds, which rose by 21.3% and 23.5% respectively when compared to a year ago. And while advisory dealing funds saw modest growth of 5.9%, the company’s overall performance has been upbeat.

Clearly, Charles Stanley has benefitted from favourable trading conditions. Share prices across the globe have enjoyed one of their best starts to a calendar year in some time. Now though, the outlook is changing and there is a reasonable chance that further share price falls could be ahead. As such, the forecast growth rate in the company’s bottom line of 74% this year and 37% next year could be downgraded if operating conditions deteriorate.

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Despite this, the company seems to be a worthwhile investment at the present time. It has a price-to-earnings growth (PEG) ratio of just 0.2, which indicates that it offers a wide margin of safety. Therefore, even if the favourable operating conditions of recent months fade in future, its share price could still rise.

Upbeat outlook

Also offering high growth potential at a very reasonable price is diversified financial services company Standard Life (LSE: SL). It is expected to record a rise in its earnings of 57% this year, followed by further growth of 7% next year. As well as high growth, it also offers a range of products and services and operates in a number of geographies. This could reduce its overall risk profile and lead to a more robust earnings profile in the long run.

Despite this upbeat outlook, Standard Life trades on a PEG ratio of just 1.7. This indicates that its share price could rise significantly and still leave it trading at fair value. Given the uncertainty in global financial markets, such a wide margin of safety could prove to be a useful ally for long-term investors.

As well as a low valuation and high growth prospects, Standard Life also has strong dividend growth potential. It currently yields 5.9% from a dividend which is covered 1.4 times by profit. This suggests a sustained rise in dividends could lie ahead, which may cause the company’s shares to become increasingly popular at a time when inflation is edging higher.

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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.

Peter Stephens owns shares of Standard Life. 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.

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