One FTSE 100 growth stock I’d buy and one I’d avoid

Take a look at why I’d buy one FTSE 100 (INDEXFTSE: UKX) stock for growth, but avoid another.

| 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.

The London Stock Exchange Group (LSE: LSE) today released an upbeat interim management statement that should give investors confidence in its future outlook.

Third quarter revenues increased by 18% on the same period last year, from £376m to £443m, as strong growth in information and post-trade services helped to sustain its double-digit advance in year-on-year revenues. These figures show how resilient trading has been for the group in the wake of its aborted merger with Deutsche Boerse and ongoing Brexit uncertainty.

CEO steps down

Still, shares in the group fell by as much 2% today, as its recent robust financial performance was overshadowed by news that Xavier Rolet would be stepping down as chief executive of the group by the end of December next year.

Rolet joined the group from Lehman Brothers in 2009 and under his tenure, the LSE has transformed itself from a company which was overly reliant on its sluggish traditional equities business into a fast-growing diversified financial markets infrastructure business. He has achieved this by embarking on a series of ambitious acquisitions, pushing the group deep into post-trade services such as clearing, custody and settlement — a booming area benefitting from new derivative rules which have been driving activity towards centralised venues.

Future growth

Looking ahead, I expect his successor will stick to its current strategy of reducing its dependence on traditional equity markets and continue to develop new products and services. I reckon this should help to deliver future growth momentum to the company and increased cash returns to shareholders. City analysts are optimistic too, with forecasts of earnings-per-share growth of 22% and 13% in 2017 and 2018, respectively.

Overall, the LSE has many attractive qualities and it seems as if the company’s growth story is far from over.

Too expensive

Meanwhile, I’m less sanguine about Bristol-based investment management firm Hargreaves Lansdown (LSE: HL). At 31 times forward earnings this year, shares in the company seem too highly rated.

Although Hargreaves is seeing strong growth in assets under administration, the company also faces a number of challenges. Firstly, it’s important to note that the firm has benefitted from a number of one-off factors which should not recur, but helped to compensate for a weak macroeconomic environment, such as the introduction of the Lifetime ISA and the increased ISA allowance.

Second, market conditions are getting more competitive as new entrants threaten to challenge incumbent firms with drastically lower fees. For example, US fund manager Vanguard, which has historically shied away from dealing directly with retail investors, recently launched its own platform to give investors direct access to Vanguard’s range of funds at a much lower annual administration fee of just 0.15%.

And lastly, the stock’s income prospects fail to impress, after a review into its requirements by the Financial Conduct Authority found it had insufficient regulatory capital surplus. As such, Hargreaves did not pay a special dividend this year, which meant total dividends in 2017 fell 15% on the previous year, to 29p a share, giving its shares a lacklustre 1.9% yield.

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.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »