My portfolio is hinged on two primary factors: growth and value. Growth stocks have the potential to reap more rewards over the long term.
Finding investments with both is ideal. I usually analyse shares to discern which have long-term growth prospects and aren’t at risk of being overvalued.
This is a careful balance to strike! On the one hand, I want shares that have the momentum to keep on rising. I also don’t want to buy shares when everybody is thinking about selling.
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I’ve found three stellar investments that all have a very strong case for my growth portfolio. There are also risks to consider! They’re all in the FTSE 250 and are companies I would be happy to own myself.
My personal favourite
Howden Joinery is in the kitchen and joinery business. The company sells and manufactures products, with operations mainly in the UK.
Investors can know they’re getting exceptional growth with Howden Joinery. I’m putting it right at the top of my list of UK growth companies right now!
Three-year revenue growth rate is at 15.5%. That’s better than 81% of competitors in the same industry.
Gross margins also keep on increasing! Up from 53% in 2008 to 61% in 2022.
That’s great news, and net margins are equally promising. Up from -6.4% in 2008 to 16% in 2022.
I can see this company continuing to outperform. The good news is that the shares are 33.40% below their high.
Something to be aware of: assets are growing faster than revenue. That means the company could be losing efficiency.
JD Sports is golden
JD Sports Fashion is a store we all know well. Did you know the shares are also positioned for growth?
Three-year revenue growth rate is 16%. That puts it just above my personal favourite…
And three-year book growth rate is 17.7%. But there are other companies like Next with stronger measures than this.
Investors should be warned; the stock isn’t undervalued by discounted cash flow analysis. That being said, the shares are down 44% from their high.
Safer, cleaner, healthier… just watch the value
Halma states its purpose is ‘to grow a safer, cleaner, healthier future for everyone, every day.’ That’s a vision statement I can get behind.
The company consists of 44 operating businesses. These operate in safety, environmental and analysis, and healthcare.
Three-year revenue growth rate is 11.4%, which is great.
Three-year book growth rate is also 12%.
What I’m most concerned about with this company is the cash-to-debt (currently 0.22) ratio. It’s not so bad… but could be better!
Also, the discounted cash flow readings are low… so I personally wouldn’t invest in the company based on this. That being said, it’s not a deal breaker. Many investors see great returns from growth companies that have traditionally weak valuations.
What would I do?
I think Howden and JD are better investments than Halma, but they could all have a place in an exceptionally strong portfolio.
I’d invest in Howden. It seems strong enough on all fronts to remove some of the downside risks that can be seen in Halma. JD Sports Fashion is also a great choice. The question really is ‘Which company do investors feel proud owning shares in?’
