Why I'm backing these growth stocks to surge in Q2
Royston Wild | Tuesday, 4th April, 2017 | More on: JDW MGGT
I believe JD Wetherspoon (LSE: JDW) could become an increasingly-popular pick for those seeking a hedge against turbulent economic conditions in the months ahead.
Wetherspoon announced last month that revenues edged 1.4% higher during the six months to January 22, to £801.4m. On a like-for-like basis sales rose by a more impressive 3.3%. The result helped pre-tax profits at the pubs giant swell 42.8% to £51.4m.
But comments from Wetherspoon's chief executive Tim Martin once again overshadowed the company's positive results, Martin launching a fresh broadside at the tax variations between what supermarkets and the pub industry pay on booze.
In particular Martin took aim at the Treasury's plans to provide tax relief of £1,000 to pubs with a rateable value of less than £100,000 as part of the latest budget. He asserted that the break will be overshadowed by increased tax and regulatory costs like larger business rates, rising excise duty and the impact of the apprenticeship levy on the broader industry.
Growth great
Despite facing a rising cost base however, I reckon the company remains a great place for growth investors to park their cash.
While inflationary pressures may put pressure on drinkers' wallets looking ahead, Wetherspoon's position at the value end of the sector could actually see it benefit from worsening industry conditions.
And the huge sums the company is shelling out to spruce up its pubs should also keep thirsty customers flocking through its doors — it plans to spend £60m on improvements to its existing sites in the current 12-month period, up from £34m last year.
The City certainly believes it has what it takes to keep earnings on an upward tilt, and have chalked-in a 17% earnings rise in the year to July 2017, speeding up from the 2% advance of last year. And further growth of 2% is forecast for fiscal 2018.
I reckon Wetherspoon is a very decent growth pick for long-term investors despite a slightly-heady forward P/E multiple of 16.8 times.
Plane brilliance
I also believe Meggitt (LSE: MGGT) is a top growth stock as the sales outlook from both the defence and civil aerospace segments improves.
The Square Mile's army of brokers expect Meggitt's transformation strategy to keep earnings rising with bottom-line rises of 7% in both 2017 and 2018 currently predicted.
As a consequence, Meggitt deals on a delicious prospective P/E ratio of 11.9 times. And I reckon this could lead to bouts of bargain hunting from share pickers in the weeks ahead, particularly if safe-haven buying of the defence sector picks up.
President Trump's vow to boost the country's arms by an eye-watering $54bn in February has already been well received by arms makers like Meggitt. But a possible rise in military contracts is not the only reason for the manufacturer to celebrate as a growing civil aviation market should keep driving sales at Meggitt's after-market operations.
This single stock could make you rich
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Meggitt. 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.
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