Many growth stocks have undergone a valuation reset in 2022. The shift from accommodative monetary policy to a global tightening cycle is not a positive backdrop for asset prices. As interest rates begin to rise, stock prices are hampered, particularly growth names with higher cash flows further out in the future.
This article will explore 5 potential growth stocks for the future that could provide value in an investor portfolio alongside a wider index fund and high-quality dividend-paying companies.
Autotrader
First on our list of top 5 FTSE100 growth stocks is Autotrader, ticker symbol AUTO. Auto Trader Group is a company that offers a digital automotive marketplace.
The company’s platform offers consumers a selection of new and used car listings, enabling them to search from the marketplace, as well as free car valuations and a variety of motoring services and advice, such as a finance search tool. As of today, the stock is currently trading at 621 pence per share.
Autotrader is a strong beneficiary from rising car prices and supply chain shortages. Semiconductor supply issues have boosted car prices in both the new and used markets, to levels that some would consider bubble territory. Many car manufacturers have cut delivery forecasts significantly.
With China back in lockdown in certain regions, manufacturers are constantly forced to shut their plants for prolonged periods of time, and there is no sign of China wavering on their ‘zero Covid strategy’. Because of this, these shortages may persist for quite a while.
With the stock down over 15% YTD, this presents an interesting opportunity, and with a dividend yield of 1.34%, it also provides a small income stream to hold this growth stock.
Rightmove
Number 2 on the list is Rightmove, ticker symbol RMV. Rightmove is an online property portal that allows users to list and find properties to rent or purchase and sell. It is the largest of its kind in the UK with only a few competitors in the space, holding sizeable market share. As of today the stock is currently trading at 597 pence per share.
With a chronic under supply of housing in the UK, the country continues to see elevated house prices. The backdrop of historically low interest rates and stamp duty holidays to entice buyers and stimulate the market has led to a surge in house prices.
The UK housing market will continue to see excess demand for years to come, especially for period houses in areas scarce of free land such as city centers, and new build homes qualifying for government schemes such as ‘Help to Buy’. Rightmove as a portal provider, will continue to benefit from this backdrop.
A ‘best in class’ stock for investors looking for exposure to the housing market, which could prove to be a much better option than house builders who are facing inflationary pressures from commodity prices while impact margins and ultimately, their bottom line.
With the stock down 25% YTD, it presents a buying opportunity for investors, and with a dividend yield of 1.31%, it once again provides growth potential with some passive income.
Croda International
Number 3 on our list of top FTSE 100 growth stocks is Croda International, ticker symbol CRDA. Croda International is a company that specializes in the manufacturing of specialty chemical products, the likes of which are used across an enormous array of products, from creams and lotions for personal healthcare, to coatings and polymers, industrial chemicals and much more. As of today, the stock is currently trading at £64.74 per share.
Like the others on this list, Croda has seen a stark drawdown, falling over 35% YTD. This is despite the company posting rising sales and profits year-to-date, with the announcement in May showing that the company was able to successfully pass rising inputs costs realized due to inflation on to its customers.
Companies such as Croda that have significant pricing power and free cash flow are the companies that will benefit the most in this inflationary environment. The company has also demonstrated that it is able to deliver strong growth over the long term.
With the stock up over 70% in the past 5 years, the recent pullback has provided investors with a good entry point amid a valuation reset.
With a current dividend yield of 1.56%, Croda presents an opportunity to add a potential growth name to a portfolio while also providing a small amount of passive income. Dividends also limit the potential downside a stock can realize, and should give investors an element of stability amid a volatile market environment.
JD Sports
Number 4 on our list is JD Sports, ticker symbol JD. JD Sports Fashion is a multinational retailer, specialising in sports fashion, outdoor footwear and apparel, combining global brands such as Nike, Adidas, Puma and The North Face, as well as its own brands. As of today, the stock is currently trading at 126 pence per share.
JD has been knocked hardest YTD, posting a massive 42% decline. The macroeconomic challenges including China lockdowns and supply chain constrains have been significant headwinds on the stock.
Despite this, the company posted strong full year results ahead of expectations, as it continues to build its relationship with Nike in the US and partnering with ‘best in class’ brands in the industry.
After the company announced it was ceasing trading in Russia, the stock provided a valuation reset and yet another opportunity for investors to start a position in a great company at more attractive levels.
Now trading at just under 10 times trailing 12-month earnings, the stock is cheap relative to recent history. While the dividend is almost negligible at 0.28%, it does provide investors with some income for holding the stock.
AstraZeneca
Finally at number 5 on our top FTSE100 growth stocks list is AstraZeneca, ticker symbol AZN. The company has become a household name following its release of the vaccine and continues to provide monoclonal antibody treatments to this day. As of today, the stock is currently trading at £103 per share.
In times of extreme market volatility and a persistent downtrend, healthcare is seen to be a strong bell-weather. This can be seen in the recent performance in AstraZeneca’s stock, with it posting massive gains of over 22% YTD.
While this may not provide the most attractive entry point relative to others on this list, the stock has outperformed for a reason. With a dividend yield of just over 2%, AstraZeneca provides a decent relative income stream for a growth stock. With a 110% gain in the share value over the past 5 years, it’s clear that management have executed on its goals over time.
With the acquisition of Alexion, the company incurred one-time charges that dampened the previous earnings results, but because of this, is expected to post double-digit revenue and earnings growth in the coming release. Alexion is expected to give AstraZeneca a strong growth runway for the years to come, and because of this, coupled with the removal of one-off charges, the future earnings outlook for the company looks strong.
While the stock may provide a better entry point in the future amidst a wider market move, AstraZeneca has proven it can provide value in the long term for investors, while returning capital to shareholders.
