As both a risk-averse and income-focused investor, growth stocks are not my forte. I prefer the reliable income that dividend shares offer and the stability of defensive stocks.
Still, they all have their place in any portfolio and it’s necessary to explore their value from time to time. Growth, dividend, and defensive stocks each play a distinct role in a diversified investment portfolio, and their interplay helps balance risk and return across different market conditions.
Driving capital appreciation
Typically, growth stock companies are expected to increase earnings at an above-average rate (compared to the broader market). They usually reinvest profits back into the business rather than paying dividends and often operate in dynamic sectors such as technology, healthcare, or consumer services. They can help a portfolio grow faster than other stocks but their volatility adds a higher level of risk, as growth can quickly turn into losses.
This is in contrast to the stable, slow growth of defensive stocks or the reliable income from dividends. How to balance all three comes down to the individual investor’s goals, financial situation, and age.
Here’s two FTSE 250 growth stocks that look promising and I think investors should consider.
Chemring Group
Chemring Group (LSE: CHG) is a defense technology firm that’s capitalising on increased global defence spending. In the 12 months to October 2024, revenues rose 9% to £510.4m and its order book surpassed £1bn for the first time.
This represents a year-on-year increase of 13%.
My one concern would be its balance sheet, with debt exceeding its cash and near-term receivables, which puts it at risk of defaulting – especially if cash flows are disrupted. Its operations are influenced by geopolitical dynamics, including defence spending patterns and international relations. Changes in government policies or international tensions could affect demand for its products and services, reducing cash flow.
Still, analysts project earnings growth of 28% for the current fiscal year and an additional 12% in 2026. And with a price-to-earnings-to-growth (PEG) ratio of 0.6, the stock appears sufficiently undervalued. Plus, it’s investing heavily to reach its target of £1bn in annual revenues by 2030, expanding manufacturing in the UK, US, and Norway.
That is just the kind of thing I look for in a growth stock!
Breedon Group
Breedon Group (LSE: BREE) is a major UK building materials group and a strong growth stock. It focuses on expanding the business through strategic acquisitions, including a recent move into the US market with the $300m purchase of Missouri-based BMC Enterprises.
When considering growth stocks, it pays for look for companies that are actively expanding. The group’s desire to increase its US market presence is a promising sign, especially as it aims to account for about a fifth of cash profits by 2026.
At the same time, it also introduces risks related to integration challenges, cultural differences, and potential overextension. If badly managed, new businesses can lead to operational inefficiencies and financial strain.
Its financials aren’t spectacular but reasonably good. In its latest FY2024 results, revenue rose 6% to nearly £1.6bn, with an 11% increase in adjusted cash profits to £270m. Analysts remain optimistic, with the average 12-month forecast expecting the share price to climb by 26%. Despite potential increased debt from acquisitions, the company’s leverage remains reasonable and its rising dividend policy exhibits a solid commitment to shareholder returns.
