As the FTSE 100 slides, many of the growth stocks I wish I’d bought before the rally are starting to get cheaper again. This only makes me want to buy them more.
Accounting software specialist Sage Group (LSE: SGE) has been on my watchlist for over a year. The trigger was realising that it was more likely to benefit from the artificial intelligence revolution than be destroyed by it, as originally feared.
In December, with the Sage share price up more than 50% in a year, I was kicking myself for failing to act on its obvious potential. It had just reported a 12% rise in full-year 2023 revenues to just over £2bn, and hiked its dividend 5%.
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Top recovery play
Sage was also sitting on £1.3bn of cash while Bank of America was optimistic about its future, saying “demand remains unabated”. So what stopped me? I feared I’d missed out on the fun and so it proved.
Sage’s first-half 2024 revenues rose 10% to £1.15bn but markets were spooked by a downgrade to full-year guidance. Expectations were running too high. The stock is now down 9.21% in the last month, although it’s still up 24.21% over one year.
It’s the priciest of my three stock picks here, trading at 33.02 times earnings. Yet I’d take still take advantage of the recent dip and buy it, if I had the cash.
Equipment rental firm Ashtead Group (LSE: AHT) is one of the biggest FTSE 100 winners of the last 20 years. It is plugged into the US market, where subsidiary Sunbelt Rentals has done well out of President Joe Biden’s Inflation Reduction Act, which has pumped stimulus into the US economy.
The US economy is slowing as interest rates look set to stay higher for longer, impacting growth. The Ashtead share price has dipped 5.47% in the last month, but is up 17.25% over 12 months. It can be volatile as revenues depend on variables like wildfires and winter storms, which boost demand for its kit.
Trading at 18.95 times earnings, I think the valuation is right for this one. I would like to buy before interest rates start to fall rather than afterwards, on the assumption that this will trigger another growth surge.
Bargain buy?
There’s one more on my growth stock I’m keen to buy in the current dip: oil and gas giant Shell (LSE: SHEL). This is the cheapest of all, trading at 8.45 times earnings. It also offers the highest yield, at 3.65%.
The Shell share price rocketed during the energy shock. As a cyclical stock, I’d rather buy in a downturn. This could be my moment as it’s fallen 4.24% in the last month, although it’s still up 18.19% over the year.
Shell enjoyed a strong first quarter with $7.7bn earnings smashing estimates of $6.5bn. That was lower than the $9.6bn it posted in Q1 2023, when energy prices were higher. The board soothed shareholders with a new $3.5bn share buyback.
Shell has to walk a fine line between making money and complying with climate obligations. In the short term, share price movements depends on the oil price. In the longer run, buying it still feels like a no-brainer. I’d love to add it to my portfolio at today’s reduced valuation.
