How I’m finding the best growth shares to buy for my Stocks and Shares ISA in 2024

With only a few months to take advantage of the current Stocks and Shares ISA limit, our writer’s preparing a shopping list of quality growth stocks to buy.

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.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

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.

With inflation down to 3.9% in November, I think 2024 is shaping up to be a great year for UK growth stocks. It’s for this reason I’m rushing to make a shopping list of what to buy for my Stock and Shares ISA.

Why might growth stocks recover?

It’s worth just being clear on what I’m talking about here.

A growth stock has the potential to increase earnings at an above-average rate. While certainly not always the case, this sort of business tends to be smaller. Think FTSE 250 and below, rather than the heavyweights that make up the FTSE 100.

Growth stocks understandably tend to perform better when inflation’s falling. As this cools, central banks drop interest rates. This means any debt they may need to finance their expansion costs less.

Falling rates could also be good news for consumer-facing companies as shoppers feel more inclined to splurge.

Now, if we are to see a juicy recovery in these sorts of stocks next year, it makes sense to hold them in a tax-efficient account. Who wants to hand over a sizeable chunk of those lovely gains to the taxman?

That said, it makes no sense to go charging in and buying any old thing.

I want ‘quality’ growth

Like billionaire investor Warren Buffett, I hunt companies that have some sort of competitive advantage over rivals.

This doesn’t need to be a new product or service. It could come in the form of brands that people habitually buy. Or it may be based on the hassle involved in switching to another provider. The growth I’m looking for just needs to be decent.

Like UK super-investor Terry Smith, I also want to see evidence that these companies have compounded investors’ money at a higher-than-average rate over time.

One metric for judging this is ‘returns on capital employed’. This is how much a business gives back relative to the cash shareholders pump into it. Anything over, say, 20% is good enough for me. Some businesses, such as fantasy figurine maker Games Workshop, consistently post return on capital employed (ROCE) around 60%! Needless to say, I’m already invested.

I’m also wary of anything with a wobbly balance sheet. As mentioned earlier, companies often need to borrow money to expand. But this needs to be done with care, even in good times. So low or no debt is preferred.

What might go wrong

One thing worth remembering is that I have no idea where the markets will go next. I may think growth stocks will do well in 2024 but the opposite could easily play out. That rate cut (or cuts) may not come as soon as expected, or be less than expected. Some other random event could also get investors worried.

This is why I think it’s important to have some balance in my portfolio. This means holding some established blue-chips where jumps to revenue and profit are less likely.

On the flip side, this usually translates to a nice passive income stream via dividends. Importantly, these also escape the clutches of the taxman if held inside an ISA.

Armed with this diversified bunch of stocks, I should be able to get through whatever 2024 has in store. Fingers crossed, it will be the beginning of another bull market.

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.

Paul Summers owns shares in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. 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

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »