Regular readers will know that I’m a big fan of dividend investing. Most of the companies that I have invested in pay solid dividends and that means I collect cash payments on a regular basis for doing absolutely nothing. It’s a brilliant investment strategy.
However, diversification is important and I think it’s a good idea to have a little bit of exposure to growth stocks within a portfolio. This can help make a portfolio a little more balanced and ensure that it doesn’t underperform if dividend/value investing is out of favour. With that in mind, here’s a look at a FTSE 100 growth stock and a FTSE 250 growth stock I’d buy for 2019 and beyond.
FTSE 100 growth
The FTSE 100 index is not known for its ‘growth’ prowess. Most of the stocks at the top of the index are slow-moving, mature companies that have been around forever. However, down at the bottom of the index there are some names that look interesting from a growth perspective and one company that I hold in high regard is property website specialist Rightmove (LSE: RMV).
Running the rule over Rightmove, it quickly becomes apparent that it’s a super growth stock. Over the last five years, revenue and net profit have grown by 105% and 130% respectively, while profitability has been exceptionally high, with profit margins averaging over 70%, and return on capital employed (ROCE) averaging an incredible 2,146%. Debt is also very low, which is another desirable attribute. Looking ahead, City analysts expect sales and profits to continue their upward trend.
Rightmove shares have performed exceptionally well over the last decade, but I think there could be more to come from this technology/property stock. Top fund manager Terry Smith seems to agree, as he’s recently been buying it for his new investment trust. With the stock down 8% in the last six months on the back of Brexit uncertainty, RMV currently trades on a forward-looking P/E ratio is 23.6. I think that’s a fair price to pay for this high-quality business.
FTSE 250 growth
Moving down to the FTSE 250, one growth stock that I like in this index is JD Sports Fashion (LSE: JD). I see the stock as a play on millennials, who have an affection for trainers and athleisure, and I also see the stock as a good way to profit from the enduring power of the Nike and Adidas brands.
Whereas many UK retailers are struggling at the moment, JD appears to be holding up quite well due to its dynamic multi-channel business model which combines physical stores with digital online stores. Furthermore, with its international expansion strategy gathering momentum (18 stores were opened in Europe and 21 in Asia in H1 2018), the growth story going forward looks quite exciting, in my view. Currently, analysts expect revenue to surge 43% this year and earnings to climb 9% although we will find out more about how the company performed over Christmas on Monday when the group releases its Christmas trading statement.
JD shares were sold off heavily late last year as Brexit uncertainty and global equity market volatility weighed on risk appetite, and at the current share price, the stock trades on a forward P/E of just 14.2. I think that’s a steal for this high-growth FTSE 250 company.