Two growth stocks on my radar at the moment are BAE Systems (LSE: BA.) and Diploma (LSE: DPLM).
Now you might be wondering how established businesses with large market capitalisations can also be growth stocks? Well, there’s no rule of thumb as to what constitutes a growth share. For me, it’s more about future earnings and returns potential.
Here’s why I reckon investors should be taking a closer look at these stocks.
BAE Systems
BAE is one of the world’s largest defence businesses. There are two primary reasons I reckon it is a top option for growth reasons.
To start with, defence spending globally is at all-time highs. I imagine this is in part due to heightened geopolitical tensions in various locations in the past few months. Of course, I must say no one wants to see these conflicts continue, and I’m hoping for a speedy resolution. However, it must be noted that defence spending is much more than just weapons. BAE’s footprint and reputation put it in a prime position to boost earnings and payouts.
This leads me nicely onto my next reason, investor returns. Although a dividend yield of 2.5% may not seem the highest out there, BAE has an excellent track record of paying and increasing dividends. This could continue if performance continues to grow too. However, I’m conscious that dividends are never guaranteed.
Finally, on a price-to-earnings ratio of 17, BAE shares look decent value for money right now considering the size, footprint, track record, and reputation of the firm.
From a risk perspective, resolution of conflicts could result in a performance and return pullback compared to recent stellar years. This is something I’ll keep an eye on but, as mentioned earlier, defence spans way more than weapons spending.
Diploma
Diploma specialises in industrial technical products it provides to a number of sectors. It has grown exponentially through shrewd acquisitions which has helped broaden its footprint as well as grow performance.
Now the big risk with Diploma for me is its current valuation. Trading on a price-to-earnings ratio of 38, the shares are expensive. A poor acquisition or trading downturn could send the shares tumbling. It is worth mentioning the shares have been pricey for some time now, even before it began to soar. Perhaps some of this growth was already priced in.
However, the other side of the coin looks attractive, if you ask me. Since the firm changed CEOs in 2019, it has managed to boost performance marvelously. I think this was perfectly demonstrated by its latest full-year report released last month for the year ended 20 September 2023. The headlines for me were revenue and profit increases, of 19% and 24%, compared to the same period last year. Margin levels, free cash flow, earnings per share, and its dividend all increased too.
Like BAE, Diploma offers a modest dividend yield of 1.7%. However, I can also see this increasing in the future as the business continues its impressive growth trajectory.
To conclude, it seems Diploma’s acquisition-led growth strategy is working very well. I reckon it can continue its good run if past results are anything to go by but I do understand past performance is not a guarantee of the future.
The post 2 fantastic growth stocks investors should consider buying! appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
I’m buying FTSE 100 star BAE Systems as it pulls off deals worth billions
Got a spare £1,000? I’d buy 28 shares of this FTSE 100 stock to aim for a million
Best British dividend stocks to consider buying in January
I’m tempted by BAE Systems shares but may buy this cheap FTSE 250 rival instead
2 growth stocks that could crush the market in 2024
Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. 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.
