I’m looking for the best growth stocks to buy the next time I have money to invest, and I think the following two candidates might be too cheap to pass up.
Babcock International
British defence stocks have great long-term potential. However, following the outbreak of war in Ukraine, many of these companies now appear quite expensive compared to previous prices.
This is not the case with Babcock International Group (LSE:BAB). With a price-to-earnings ratio (P/E) of 12.4, it trades at a healthy discount compared to many of its industry peers, including FTSE100-listed BAE Systemsand US stocks Northrop Grumman, Lockheed Martin And RTX Corporation.
Your win multiplier is shown in the table below.
|
Pursue |
Expected P/E ratio |
|---|---|
|
BAE Systems |
18.8 times |
|
Northrop Grumman |
17.6 times |
|
Lockheed Martin |
17.7 times |
|
RTX Corporation |
18.7 times |
Like these companies, Babcock is enjoying steady growth in orders and revenue as western countries rebuild their arsenals. Despite recent disposals, revenues in the six months to September rose by around 2% year-on-year to £2.2 billion, while the order book remained strong at £9.6 billion (up from £9.9 billion a year earlier).
Babcock is expected to release more good news when it announces its annual results this month. As a result, City analysts expect profits to rise 13% in the current financial period (to March 2025), with growth also expected to improve to 14% in the 2026 financial year.
Irregular contract terms pose a constant threat to the profit forecasts of defense companies. Such a scenario could pull the price of Babcock shares down again.
But overall, I still find the investment case very attractive. And the low share price could help limit price declines if the news is disappointing.
Centamine
I am also thinking about adding mining companies Centamine (LSE:CEY) shares into my portfolio. Gold prices have soared in recent months, and in the current macroeconomic and geopolitical environment, it looks like they could rise much further.
I can profit from rising metal prices by buying an exchange-traded fund (ETF) that tracks price movements, or I can earn passive income by buying a dividend-paying stock instead.
This is where Centamin comes in. Dividends are of course never guaranteed. But based on current payout forecasts, the company is generating a healthy yield of 3.1%. This is roughly equivalent to FTSE250 Average.
Commodity stocks can be extremely volatile, so I wouldn’t buy the African mining company in the short term, as its share price could collapse if the gold price reverses.
That’s why I’m also considering buying it to diversify my portfolio and protect it in case economic conditions deteriorate and financial markets generally collapse. The demand for precious metals as a safe haven investment tends to skyrocket under such circumstances.
And at current prices, Centamin looks like a bargain. City analysts expect earnings to rise 229% in 2024, putting the stock’s price-to-earnings (PEG) ratio below 0.1.
Any value below 1 indicates that a stock is undervalued.
The post “2 dirt-cheap growth stocks I’d buy and hold for AT LEAST 5 years!” appeared first on The Motley Fool UK.
Further reading
Royston Wild does not own any of the stocks mentioned. The Motley Fool UK has recommended BAE Systems and Lockheed Martin. The views expressed on companies mentioned in this article are those of the author and may therefore 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.
Motley Fool UK 2024
