I’m searching for the best growth shares to buy for my portfolio next month. And the following two — which are tipped to increase earnings by double-digit percentages over the short term — look like they could be too cheap to miss.
Here’s why they’re on my watchlist right now.
Central Asia Metals
Should you invest £1,000 in Babcock right now?
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Buying mining stocks like Central Asia Metals (LSE:CAML) has significant investment potential. Earnings can shake badly when economic conditions worsen, putting pressure on commodities prices. But the long-term outlook for base metals — and consequently for companies like this — remains bright.
This particular AIM share digs for copper, lead, and zinc in Kazakhstan and North Macedonia. Purchases of these metals are tipped to rocket over the next decade thanks to increasing urbanisation, growing renewable energy demand, and rising sales of electric vehicles (EVs).
City analysts are expecting Central Asia Metals’ profits to rise strongly from this point on. They predict a 27% bottom-line jump in 2024. A further 12% increase is forecast for next year, too.
These projections leave the company looking extremely cheap, too. Its shares trade on a price-to-earnings (P/E) ratio of 9.7 times. They also sport a price-to-earnings growth (PEG) multiple of 0.4.
A reminder that any reading below one indicates that a share may be undervalued.
As an added bonus, Central Asia Metals shares also offer great value in terms of predicted dividends. The yield here for 2024 comes in at an enormous 8.8%.
On the downside, the company lacks the scale of some of the FTSE 100‘s mega miners like Rio Tinto or Glencore. It only has two projects on its books, which leaves group profits more vulnerable to project disruption.
But given the excellent all-round value it offers, I still think it’s worth serious consideration right now.
Babcock International
Defence contractor Babcock International Group (LSE:BAB) is another share I believe offers tremendous value today.
Its forward P/E ratio currently stands at 12.7 times. While higher than the FTSE 100 and FTSE 250 averages, this reading reflects the strong outlook for defence spending as geopolitical tension rises.
I think a better idea is to compare Babcock’s multiple to those of other London-listed equipment suppliers. And on this basis, I believe the company — which provides support and training to British and international customers — looks pretty cheap.
Industry giant BAE Systems trades on a forward earnings multiple of 19.8 times, for example. Meanwhile, Avon Protection and QinetiQ deal on ratios of 30.8 times and 14.9 times, respectively.
Babcock provides services to multiple territories including the UK, Australia, Canada, France, and South Africa. Defence-related spending from these regions is recovering strongly from their post-Cold War lows and has much further to go.
This is why City analysts expect Babcock’s earnings to increase strongly for the foreseeable future. A 13% rise is tipped for this fiscal year (to March 2025), and another 14% jump is predicted for financial 2026.
Lumpy contract timings are a constant threat to earnings in the defence industry. But on balance, I believe Babcock looks in good shape to grow profits over the next several years, at least.
