UK growth stocks are often seen as the backbone to a good stocks portfolio. This is because a growth stock (on average) offers higher returns than a mature stock. To balance this higher return, I need to be happy taking on higher risk too. The volatility with growth stocks tends to be quite high, with some larger moves downwards likely to test my patience. But I do think such stocks are worth owning, so here are some of my favourites to buy now.
Focusing on consumer favourites
Greggs (LSE: GRG) is a UK bakery chain that is pushing on with a growth strategy. Even with the temporary closures of stores last year, the business actually opened 28 shops (net) in 2020. Greggs is aiming to open 150 this year to further drive market share.
I think the outlook for this growth stock is positive when I take into account other initiatives beyond physical stores. It has diversified into offering products in supermarkets, and taking advantage of home delivery.
One risk though is the very competitive market it operates in. It competes against local and national companies in the same space, and so is always at risk of losing business.
Another UK growth stock I’m considering is Entain (LSE: ENT). The gambling and sports betting company has registered impressive share price gains. Over the past year, the share price is up 121%! As the 2020 results noted, it has seen 20 consecutive quarters of double-digit online net gaming revenue growth.
Even with physical shops closed, the company has been able to lean on the online side of the business to help deliver revenue. With shops now starting to open, I think the outlook is positive to capitalise on retaining online users as well as adding new in-store customers.
One concern I do have is the expansion into other countries such as Portugal and the Baltics. Entain has to be careful not to spread itself too thinly across geographies, and be a victim of its own success.
A UK growth stock that’s seen a price correction
Ocado Group (LSE: OCDO) was a favoured stock of mine at the start of last year, and I have owned it in the past. For the second half of last year, I thought it was overvalued, and wrote on the topic. It almost had the same market capitalisation as Tesco, despite Tesco having a market share of 27%.
Ocado shares have since corrected lower, down 23% over the past six months (up 11% over a year). I think current levels make it a good UK growth stock to consider buying.
Q1 2021 results showed retail revenue growth of almost 40%. Interestingly, the partnership with Marks & Spencer is doing well, with its products accounting for over 25% of the average basket.
I think strong growth can continue, and my only concern is how much of the growth over the past year was lockdown-driven. Based on a fairer valuation via a lower share price, I think the market has already priced in some of this. Therefore, I’m not too concerned about ove- paying for this UK growth stock.
I’d consider buying all three of the above mentioned growth stocks, to build on a stronger UK (and global) economy as we move through 2021.
