Growth stocks can be attractive additions to my stock portfolio due to high potential share price appreciation. This differs from the likes of dividend stocks that I would buy for the income payments rather than pure share price upside. Although growth stocks can be volatile in the short run, here are two that I’d consider buying now for the long term, with £500 in each.
A 2019 star is back?
First up is JD Sports Fashion (LSE:JD). The fashion retailer was a star performer during 2019, but the pandemic saw the share price plummet last spring. It went from 870p to 380p in less than a month, as investors realised that physical stores were unlikely to be generating any revenue due to lockdowns.
I think the growth stock showed good resilience during last year, as the financial results show. Revenue actually managed to grow slightly from £6.11bn in 2019 to £6.16bn in 2020. Profit did shrink slightly from £438m to £421m, but it was still a good year with everything taken into account.
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The pandemic hasn’t dented the ambition of further growth for JD Sports. In recent years it’s pushed forward into the US, with a flagship Time Square store and acquisition of US-based Shoe Palace. I think this international growth should help to push the share price higher once firmly established.
One risk of investing in this growth stock is the supply chain. The fast nature of needed stock, particularly during busy Christmas trading periods, can put the supply chain under pressure. When I add in the impact of customs checks and disruption due to Brexit, any issues here could have a large negative impact on revenue.
A UK tech growth stock
The second stock I’d buy now is AVEVA Group (LSE:AV). Although its origins can be traced back to 1967, it ticks the box for me of being a UK technology growth stock in 2021. The industrial software company has grown over the years naturally and also through several acquisitions.
The one that catches my attention was the £3.8bn purchase of OSIsoft, which was recently completed. This company helps to make software around real-time data management. As such, it has an incredibly wide range of potential commercial uses. I think that this purchase could accelerate growth for AVEVA at a group level.
Over the past year, the share price is up by 20%. I accept that this is relatively modest for a growth stock, but like JD Sports, the pandemic did negatively impact business. However, given the profitability of OSIsoft, the outlook overall is positive in my opinion.
A risk for AVEVA is one that is present for most tech growth stocks. The outperformance tends to come during periods of strong economic growth, when R&D spending is high and demand is strong. The pandemic might have been just a blip, but if we see a recession later this year or beyond then I would expect investors to sell out of AVEVA and into safer stocks such as utilities.
Overall, both JD Sports and AVEVA are two companies I think offer me good value to buy now with £500 each.
