I think these 2 FTSE 100 shares could be set for serious growth over 12 months

Here’s one growth share that’s trounced the FTSE 100, and one I think has that potential still to come. I’d buy both, now.

| 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.

It’s not often I start up my computer and see Ferguson (LSE: FERG) leading the FTSE 100. But that’s what happened Tuesday, with the heating and plumbing distributor’s shares gaining as much as 7% in early trading.

The wider 2020 picture is even better. The Ferguson share price slumped in the early days of the Covid-19 crash, falling even harder than the Footsie itself. But a remarkable recovery has seen Ferguson shares surge to a 12.5% gain year-to-date, while the index is still down 22%. A growth share? In the FTSE 100? in 2020? There aren’t many of those about.

The latest uptick is all down to results for the year to 31 July. When you open with “Strong and resilient performance during highly challenging period” and “Continued robust financial position,” the figures had better be good. And they are.

Should you invest £1,000 in Gsk right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Gsk made the list?

See the 6 stocks

There’s a 0.9% fall in revenue, and a drop of 4.8% in statutory pre-tax profit with basic EPS down 11.2%. This year, there’s many a FTSE 100 company that would love to be able to report such a relatively strong position. But Ferguson’s numbers for ongoing business look even better. The firm reported a 2% rise in ongoing revenue, with ongoing underlying trading profit up 4.1%.

Balance sheet

Right now, the crucial thing for most companies is their liquidity. A company can withstand a short-term downturn if its balance sheet is strong enough. But a FTSE 100 crisis like 2020’s can really expose those that over-extended their debts during better times and are now dangerously exposed.

Here, that’s not a problem. There’s some debt, but Ferguson can happily report a net debt-to-adjusted EBITDA ratio of just 0.6x and falling. In normal times, I’d generally consider anything under 1.5x as safe. So there’s no danger here.

Ferguson’s shares are on a forward P/E of 19, which is above average. But it’s a quality company, and I think it deserves a higher valuation.

FTSE 100 builder

My next pick is Barratt Developments (LSE: BDEV). My Motley Fool colleague Jonathan Smith says of Barratt: “I think this top growth stock could rebound strongly in the short term.”

I agree. The Barratt share price is down 37% so far in 2020, while the FTSE 100 is sitting on a 22% loss. I think that’s oversold, and it could spike upwards at any time.

The year to 30 June did see a big drop in completions, but that’s for the obvious reason. The Covid-19 pandemic pretty much halted house purchases from February onwards. But the company is still making good profits and looks to be in no real danger of struggling.

No cash problem here

Pre-tax profit came in at £492m, with EPS at 39.4p. Both of those are down around 45%, and the dividend is suspended to help retain cash. But the liquidity situation is fine, with net cash of £308m on the books.

By 31 August, the value of forward sales was already up 22%. For the current year, we’re looking at a forward P/E of under nine. I don’t know what might kick off a re-rating of the Barratt share price. Maybe a positive FTSE 100 run? Or maybe the reinstating of the Barratt dividend. The company has said that “when the board believes the time is right, it will implement a dividend policy based on a dividend cover of 2.5 times.”

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Gsk right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Gsk made the list?

See the 6 stocks

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.

Alan Oscroft has no position in any of the shares mentioned. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Close-up of British bank notes
Investing Articles

£20,000 in savings? Here’s how it could be used to target a £913 second income each month

Christopher Ruane walks through some practicalities of how an idle £20k could be the foundation for a sizeable long-term second…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 steps to building monthly passive income with a spare £10k

Christopher explains how an investor could aim to use some spare cash to start building regular passive income streams through…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Tesla’s struggling. Could NIO stock benefit?

NIO stock has moved up very slightly this year, while Tesla has crashed. Our writer considers whether it might be…

Read more »

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »