I think I should focus on these steady growth stocks right now rather than chase the next big penny stock. And two beaten-down growth stocks from my watchlist look very cheap and could be great long-term prospects for my portfolio.  

Tech growth stock down 41%

Software firm Kainos (LSE: KNOS) is a service provider to private and government organizations. The company specialises in data aggregation and AI-related software services that help businesses streamline and organise data. And after the recent tech crash, its share price is down 41% in 2022.

But Kainos has been posting some impressive financials recently. In the interim report for the period ended September 2021, Kainos recorded organic revenue growth of 32%. The company increased its cash balance by 29% to £80m which prompted an 11% dividend hike to 7.1p per share. 

Its digital services business is growing at a compounded annual growth rate (CAGR) of 29% and its partnership with Workday Practices is growing at a CAGR of 49%. For a subscription-based service, its customer retention rate of 89% is very impressive too. The company is largely debt-free and is investing in promising R&D avenues.

Despite this strong showing, the tech sector does come with a few concerns. Despite the current drop in price, Kainos shares are still trading at a price-to-earnings (P/E) ratio of 32 times, which is high. Another concern is that businesses may cut external services to save costs during periods of inflation. 

But Kainos has a strong business model and looks like one of the top growth stocks on my list. The company has promising partnerships with the UK government and private sector firms. And I would be tempted to make an investment if the share price drops below 900p.

British pandemic superstar 

Plumbing firm Ferguson (LSE:FERG) grew immensely after the pandemic crash. Between April 2020 and December 2021, its stock jumped nearly 200%.

But as markets correct, Ferguson shares have gone down 27% so far in 2022 and are currently trading at 9,700p with a P/E ratio of 13 times. And I think now is the perfect entry point for me to invest in this excellent growth stock.

Recently released second-quarter (Q2) 2022 results look very impressive to me. The firm recorded strong sales growth of 29.1% and grew operating profits by 68.3%. In the three months ended 31 January 2022, the company recorded an operating profit of $555m. This is 74% higher than the corresponding period in 2021. The company also rolled out $417m of a $1bn share buyback program recently.

Fluctuating macroeconomic conditions and increased competition from smaller companies in the US and Canada are big concerns. Also, setbacks from halted development projects could dent future earnings. 

But the company remains one of the top growth stocks on my watchlist. It is available at an attractive price backed by strong recent financial performances, which is why I would consider an investment if prices drop further.

Heating and plumbing

So what does Ferguson do? Well, it is a support services business specialising in the manufacture and distribution of heating and plumbing products. It has extensive market share in North America, as well as operations here in the UK.

As I write, Ferguson shares are trading for 9,412p, making them the third-most expensive shares on the FTSE 100 currently. The only two companies whose shares cost more are AstraZeneca in second, and Spirax-Sarco, the most expensive.

At this time last year, Ferguson shares were trading for 9,432p meaning the shares are up close to levels seen this time last year. Recent macroeconomic and geopolitical pressures had sent the shares downwards since the turn of the year. The shares have dropped close to 30% from 13,105p at the beginning of 2022 to current levels.

Risk and reward

The aforementioned macroeconomic issues are a worry for me. Some of these issues include soaring inflation, the rising cost of raw materials, and the global supply chain crisis. Ferguson’s performance could be affected as more expensive raw materials could result in production costs increasing. This would squeeze profit margins. Furthermore, the supply chain issues could result in sales being affected as well if products cannot be delivered. Many other FTSE 100 businesses have come under pressure due to these issues.

So to the positives. Let’s start by taking a look at Ferguson’s performance. I do understand that past performance is not a guarantee of the future, however. Looking back, Ferguson has recorded excellent growth between 2018 and 2021 in respect of revenue and gross profit. The pandemic-affected year of 2020 saw levels drop on both fronts but this was the case for many businesses and considered an anomaly due to the pandemic. It still recorded a profit, however, unlike many other firms on the FTSE 100.

Favourable market conditions could boost Ferguson’s performance and returns, in my opinion. The housing market in the UK is burgeoning with demand outstripping supply, meaning heating and plumbing products will be high in demand. In the US, house prices in recent months have increased to levels not seen for approximately 30 years.

At current levels, Ferguson shares look good value for money on a price-to-earnings ratio of just 13. The index average is higher at 15. In addition to this, the shares would likely also boost my passive income stream through dividend payments. The shares currently have a yield of 2%. Of course, dividends are never guaranteed.

A FTSE 100 stock I’d buy

I believe Ferguson is a quality business on paper and based on its fundamentals. The majority of its profit comes from the US, which is the largest economy in the world. Having good market share here will enable it to continually perform well, in my opinion.

In summary, Ferguson shares look good value for money and performance seems to be consistent with further growth targeted ahead. This performance should underpin further dividend payments which would boost my passive income stream. I would add the FTSE 100 incumbents shares to my holdings.

A FTSE 100 stalwart: InterContinental Hotels Group 

The first company is InterContinental Hotels Group (LSE:IHG) that operates a number of hotels across North America, Europe, the Middle East and Greater China. Its brands are instantly recognisable and include Holiday Inn and Regent Hotels. 

For the calendar years 2017 to 2021, earnings-per-share (EPS) decreased from ¢244.6 to ¢144. Furthermore, revenue stayed broadly the same at $2.9bn. Usually, this earnings record would set alarm bells ringing in my head, because I like to see consistent earnings growth. What this tells me, however, is that the Covid-19 pandemic took a huge toll on the IHG business.

On closer inspection, I am heartened to see that the company swung to a 2021 profit of $361m. This was a vast improvement from a $280m loss in 2020. It now seems that the hotel firm is on a better track, given that the pandemic appears to be subsiding. It is worth noting, however, that any Covid-19 resurgence could have a negative impact on the IHG share price.

Additionally, the business reinstated its dividend in its recent annual results, after suspending it in 2020. It will amount to ¢85.9 per share.

With international travel final becoming easier, Deutsche Bank also increased its price target for the stock from 5,610p to 5,700p in February 2022. It currently trades at 5,008p. 

North American support services: Ferguson

The second FTSE 100 company I’m buying is Ferguson (LSE:FERG), a support services firm specialising in heating and plumbing products. Operating in the US and Canada, it has a strong results record. 

For the years ended in July, between 2017 and 2021, its EPS grew from ¢366.1 to ¢688.1. By my calculations, this is a compound annual EPS growth rate of 13.4%.

Furthermore, revenue increased from $1.9bn to $2.2bn over the same period. This company clearly exhibits strong growth.

What’s more, S&P stated in January that US house prices increased at the sixth-fastest rate of the last 34 years. This likely means more demand for heating and plumbing services.

It is worth noting, however, that Ferguson may be slightly expensive at current levels. It has a forward price-to-earnings (P/E) ratio of 18.38. That is higher than competitor Travis Perkins with a forward P/E ratio of 13.09.

However, investment bank Berenberg raised its target price from 10,000p to 11,200p in December 2021, owing to “very favourable” market conditions in the US. It currently trades at 11,515p. 

Overall, these two FTSE 100 companies may provide diversity for my portfolio. In addition, both firms could benefit from favourable environments going forward in the hotel and housing markets. I will be using my spare £1,000 to buy shares in both businesses. 

A top cyber security share

The amount that businesses, governments and other organisations are spend on cybersecurity is soaring. British government data released this week showed that 1,800 UK tech firms created total annual revenues of £10.1bn in 2021. This was up 14% year-on-year.

NCC Group (LSE: NCC) is one company that’s benefiting from this rapidly-expanding market. Latest financials showed revenues up 7.2% in the six months to November at constant currencies (and excluding its recent acquisition of Iron Mountain’s IPM business).

Cybersecurity-related expenditure isn’t just soaring in Britain, of course. Electronic attacks are a global problem and NCC’s broad geographic footprint is allowing it to exploit this booming market to the full. The e-warfare specialist operates in Europe, North America and Asia Pacific, and it’s taking steps to boost its overseas business too. Indeed, the $220m IPM acquisition last July gives it vastly better scale in North America.

A cheap UK tech stock

NCC provides a wide range of security and risk mitigation services to organisations. From providing protection from cyber attacks and security assessments to drawing up software escrow agreements, the tech giant’s operations are essential as the digital revolution takes off.

My only concern for NCC is the ever-present threat of systems failure. This could have a significant impact on the company’s reputation and by extension on future sales. That said, I still think this cheap UK stock’s low price makes it an attractive stock for me to buy.

City analysts think NCC’s earnings will rise 20% and 14% in the next two financial years (to May 2022 and 2023 respectively). As a result, the company trades on a price-to-earnings growth (PEG) ratio of just 0.8. Any reading below 1 suggests that a stock could be undervalued.

A FTSE 100 stock to buy

On paper it seems that Ferguson’s (LSE: FERG) shares also offer terrific value today. Forecasters think earnings at the plumbing, heating and air conditioning specialist will jump 20% this financial year (to July 2022) and by an extra 6% next year. This leaves it dealing on a forward PEG ratio of 0.9.

I like Ferguson as it generates 95% of its profits from the US. Its massive exposure to the world’s biggest economy could help it to generate large profits as the post-pandemic recovery continues. In particular, residential construction rates look set to rise strongly, while President Biden’s $550bn infrastructure spending bill could boost non-residential building too.

It’s worth remembering that rising interest rates could cause some turbulence for Ferguson’s profits. New housing projects dropped 4.1% in January, which some believe could reflect recent action by the Federal Reserve. That said, as a long-term investor I still think this FTSE 100 share has a lot to offer me. And especially as it rapidly grabs market share from its competitors.

Ferguson has seen an impressive share price rise

One of these is the provider of plumbing and heating products to professionals, Ferguson (LSE: FERG). The FTSE 100 company’s share price is up more than 40% over the past year. And in the last five years, it has actually more than doubled in value. 

Going by its latest results, it appears that there could be even better days in store for it. The company’s revenue is up by 14% for the year ending 31 July, compared to the year before. And its earnings per share (EPS) are up by a whole 58%. Its market is North America, predominantly the US. Since prospects for the economy are positive, I reckon that it can continue to make gains this year as well. 

Risk to the FTSE 100 stock

The only risk to it is inflation, which it says could impact its margins. While it is still believed that price rises are largely temporary, I do not think we should discount the impact they can have even in the short term. For proof, we just need to look at how gas prices have impacted the UK’s energy companies. So it is a red flag well worth watching out for. 

Besides this, I think there is a lot to like about the stock. It is a long-term buy for me. 

Pennon combines capital gains and dividends

Another stock I like is the FTSE 250 utility Pennon Group (LSE: PNN), which provides water and wastewater management to parts of England. Its growth is not quite like that of Ferguson. Its share price has risen some 13% in the past year and by 32% in the past five years. This is not a whole lot, but the company does have dividends to its credit. Its average dividend yield for the last five years is 6%. A dividend cut, however, drastically reduced the number. 

Its trading update, released earlier today, makes me optimistic about its future dividends, however. It reports an increase in revenue because of an increase in population in the area it services and also because of the return of business demand. 

Would I buy the FTSE 250 stock?

However, like Ferguson, it too points out to concerns around inflation. Though it expects these cost increases to be outweighed by a rise in revenue, I am waiting for more details on this when it releases its full financial results in November. 

On the whole, though, I think it is a good buy for me. 

The first time I got near after lockdown restrictions started to ease, I was surprised to see a queue stretching round the block at Primark. That’s enthusiasm. Primark’s the jewel in Associated British Foods’ (LSE: ABF) crown.

The FTSE 100 group is also big in sugar and other comestibles. Those foodie things tend to do fine, but most investors seem to concentrate on Primark. That’s possibly the reason behind ABF’s big pandemic drop, and its cautious recovery from November 2021.

But the recovery started to fade following the company’s Q3 trading update on 1 July, with ABF shares down more than 10% in 2021.

Retail revenue had trebled in the quarter compared to 2020, but declined 11% over the full nine months. Overall revenue to date dipped 2%. I didn’t see anything unexpected there, but I’m keenly awaiting a trading update due on 13 September. It comes ahead of full-year results due on 9 November.

Will I finally buy? I’ll wait and see the results before I decide.

DIY bonanza

The Kingfisher (LSE: KGF) share price is up 80% over the past two years, but it had previously been on a multi-year slide. Over five years, we’re looking at a slip of around 4%, while the FTSE 100 has gained close to 5%. Some of the recovery in the past couple of years for the owner of B&Q has been down to an uptick in DIY as people were stuck at home.

That extra demand surely has to retreat now, as I doubt the lockdown has created a new generation of long-term DIY enthusiasts. Right now, we can only guess at what effect that might have on Kingfisher’s bottom line.

I don’t expect first-half results, due on 22 September, to give us any real idea yet. They’ll only cover the period to July, and the firm has already upped its first-half guidance based on Q2 figures.

Kingfisher shares look reasonably valued to me, and I’m keeping the stock on my list of candidates. But I can’t help wondering if we might see some dips and better buying opportunities ahead.

Under the FTSE 100 radar

My final pick today is Ferguson (LSE: FERG). The name might not hit the headlines too much, but the share price has been storming ahead. Ferguson shares have almost doubled over the past two years, and were among the earliest to recover from the pandemic hammering.

There’s likely to have been a bit of a pandemic boost here too for the FTSE 100 plumbing and heating products supplier. Putting off a house move because of lockdown difficulties? Well, why not do some home improvements instead? Plenty of folk went down that route over the course of 2020.

If Ferguson shares might look overvalued now, the company itself wouldn’t seem to agree. After announcing a share buyback programme, Ferguson has been hoovering them up. Is that a wise move?

We should know more on 28 September, when we’ll have full-year results.

For starters, stock market optimism, which was still quite new for investors then, has continued. As a result, share prices across the FTSE 100 spectrum have risen and their dividend yields are no longer as attractive. Like in the case of Ferguson, which looks weak to me from an income standpoint now. While other companies have brought dividends back and the average yield has risen, Ferguson’s yield now stands at a paltry 2%. 

The Ferguson share price keeps rising

But there is a good reason for this. There has been an impressive increase in the FTSE 100 stock’s price in the meantime. This means that investors need to invest more capital for the same amount of dividend. But what it lacks in dividend yield, it makes up for in growth now. 

In the past year, Ferguson’s share price has risen by over 56%. This is pretty impressive. The Ferguson share price is now trading at around all-time highs, which it touched a few days ago. But the big question in my mind now is whether its share price can reach even higher highs. 

Robust financials

As always, I first considered its financials, which look good. For the quarter ended 30 April, its revenue grew by 24.5% from the same quarter last year. Its profits showed an even stronger growth of over 60% according to the two numbers it shared. The company says that the performance is ahead of its expectations. 

This is a sharp bounce back from the already decent performance it clocked for the year ending 31 July 2020 despite the pandemic. Its revenues were down marginally by 0.9%. Its profits were impacted by 4.8%, but compared to many other FTSE 100 stocks, this is still a neat result. And the latest improvements give me confidence that it can continue to perform. 

Assured demand

As a provider of plumbing and heating products, Ferguson is assured of steady demand even during uncertain times. This, to me, is its big advantage, and explains its resilient performance from last year. Since much of its demand comes from the US market, I think it can perform quite well this year as the economy is expected to do well. Its showrooms are also open now for customers, and account for some 15% of its revenues. 

Inflation worries

There are some risks, though. If property markets’ growth slows down, demand for Ferguson’s products can be impacted too. With rising prices of raw materials, this is possible. Also, as inflation rises, affordability falls so consumers can reprioritise expenses. I need my regular groceries, but I can choose to postpone updating my bathroom fittings if it is spilling out of my budget, for instance. 

But with the verdict on inflation still out there, I think Ferguson is a stock I like. It is on my list of shares to buy. 

As such, I’ve been searching for blue-chip stocks to add to my portfolio to invest in this recovery. Here are two FTSE 100 stocks I’d buy for my portfolio today.

Economic recovery play

Distributor of plumbing and heating products Ferguson (LSE: FERG) could be a great way to play the housing boom that’s currently taking place in the UK and United States. The company, which has operations across both, serves their home improvement and construction markets.

Activity in the UK housing market is booming, leading to higher demand for new properties and developments to existing properties. Ferguson could see a substantial increase in sales as a result.

Indeed, City analysts are already forecasting a 13% increase in earnings per share for 2021. However, these are just projections at this stage. Still, I think they show its potential.

As the scale of the property market boom has become clear over the past 12 months, analysts have upgraded their forecasts for growth by nearly 30%.

But what goes up can also go down. If the housing market starts to show signs of weakness, demand for plumbing and heating products may decline. This could have a significant impact on the company’s bottom line.

This is the main challenge the group faces right now. It may see explosive growth in the 12 months ahead, but that’s unlikely to last forever. 

But as I’m well aware of the cyclical risks of investing in the construction sector, I’m comfortable buying this FTSE 100 stock for my recovery portfolio today. 

FTSE 100 growth 

The other blue-chip stock I’d buy today is the commodity group Glencore (LSE: GLEN). The prices of essential commodities have exploded over the past few months as demand has increased.

Massive infrastructure spending programmes have been unleashed by governments worldwide over the past few months to try and restart growth after the pandemic. This has sent demand for commodities skyrocketing. 

Mining corporations will be the primary beneficiaries. However, alongside mining, Glencore is also the world’s largest commodity trader. 

Trading is low margin and high volume. It’s also essential and provides a level of diversification for the group. For example, if commodity prices fall, income from the business’s trading operation should offset declines at the mining division. 

But commodity trading also requires a lot of debt. This borrowing and low-profit margins can amplify risks. A few years ago, the organisation nearly faced a cash crunch when investors became concerned about elevated levels of debt. This could have decimated Glencore’s business model. Therefore, this company may not be suitable for all investors.

Even after taking this risk into account, I’d buy the FTSE 100 commodity group for my portfolio today. I think it’s one of the best ways to play the economic rebound in the years ahead. 

This isn’t just a Covid-19 quirk. Measured over five years they are up 238% and 136% respectively. Both published results today, and both reported a further jump in profits. I think Antofagasta and Ferguson are two of the most exciting stocks on the FTSE 100, but as ever in life there is a catch.

You can probably guess what it is, too. After such barnstorming growth, these FTSE 100 stocks are looking a little expensive. So would I buy them today?

Both shares are recovery plays

Underlying full-year profits at Chile-focused copper miner Antofagasta jumped 12.3% last year to $5.12bn, on revenue growth of 3.3%. Sales volume fell, but copper and gold prices compensated by rising around 25%. Profits were further boosted by “the weaker Chilean peso, lower input costs and continued tight cost control”, management said. EBITDA margins increased from 49.1% in 2019 to 53.4%.

Antofagasta’s 2020 dividend totalled to 54.7 cents, up 22% on last year, easily beating analyst expectations. The 1.7% forward yield may look low compared to some FTSE 100 mining stocks, but it is covered 2.8 times earnings. Naturally, with all that share price growth, dividends have struggled to keep pace.

As with any metals or minerals commodity producer, Antofagasta relies on a booming economy to support demand. Many investors have been buying in anticipation of a strong post-pandemic recovery. Currently, it trades at 44 times earnings, but with a forward valuation of just 22 times. If the recovery disappoints, Antofagasta’s share price could go into reverse. 

I’m relatively optimistic about the wider recovery, but I think the Antofagasta share price has raced ahead of many FTSE 100 stocks, and I might watch and wait for now.

Ferguson, formerly known as Wolseley, is also benefiting from recovery hopes, particularly in the US, where the company mostly operates. 

These FTSE 100 stocks are flying

The group posted a 12.2% rise in underlying half-year trading profit. Revenue rose 4.2%, despite one fewer trading day. Management put this down to “excellent cost control”. It also hailed “good operating cash generation and [a] very strong balance sheet”. Ferguson still has an eye on growth, investing $224m in four first-half acquisitions. However, management dampened expectations by flagging up a “very uncertain” second-half outlook, amid supply chain pressures.

It also warned of “increasing supply chain pressures, transportation costs and the reversal of temporary cost reduction actions” during the first lockdown. So there are potential setbacks here, which could hit the share price hard because it is also expensive, trading at 21.8 times forward earnings.

Ferguson’s forward yield is 1.8%, covered 2.6 times. As with Antofagasta, rapid share price growth makes its dividends look less generous than they really are. This is still a top FTSE 100 income stock. Ferguson also treated shareholders to a $400m buyback, following the sale of Wolseley UK.

I like both FTSE 100 stocks, but marginally favour Ferguson. US President Biden’s $1.9trn stimulus splurge should give it a lift, along with the rest of the US economy. Let’s just hope that recovery arrives soon.

Marketing marvel

Signs of improving trade at 4Imprint Group (LSE: FOUR) leads me to believe now could be a good time to invest in this UK share. The promotional products manufacturer is scheduled to release full-year financials on 16 March. This could lead to a fresh share price jump in my opinion.

Corporate advertising and marketing budgets tend to leap at the start of any economic recovery. And 4Imprint’s order book is already beginning to reflect this. Latest financials in January showed that order intake had improved to around 70% of pre-pandemic levels in the fourth quarter of 2020.

4Imprint’s has been grabbing market share at an impressive pace in recent years. But bear in mind that the marketing sector in which this UK share operates is hugely competitive. This could potentially put the brakes on the company’s impressive earnings growth of recent years.

The ace of spades

I’m also quite excited to see what UK software share Playtech (LSE: PTEC) will have to say this month. Full-year results are scheduled for release on 11 March. Last time it updated the market in January it advised that results for 2020 would be “ahead of consensus”.

Playtech provides sports and gaming software that allows online betting companies to trade. It is therefore riding the crest of a wave as Internet gambling activity powers ahead. And the company is expanding aggressively to make the most of this expanding market. It entered the lucrative US marketplace in 2020. And this month it inked a deal with US casino operator Greenwood Racing for the licensing of its products across a number of US states.

The constant threat of regulatory clampdowns on betting companies is one that has clear consequences for Playtech. But I still think this UK tech share is an attractive share to buy today. The company trades on a forward price-to-earnings growth (PEG) ratio of 0.2. Any reading below 1 suggests that a stock could be undervalued by the market. Those upcoming financials next month could remind investors of its exciting growth prospects and prompt a sharp re-rating.

Another high-quality UK share

I also reckon plumbing and heating specialist Ferguson (LSE: FERG) could impress when half-year results also come out on 16 March. This is thanks to strong market conditions in its core US marketplace.

Housing starts Stateside fell by a larger-than-expected margin in January. But on the whole conditions in the US homes market are strong and residential property starts in December rose at their fastest pace since 2006. This favourable backdrop explains why City analysts reckon Ferguson’s annual earnings will rise by mid-to-high single digit percentages for the fiscal years to June 2021 and 2022.

Remember that earnings forecasts can fall short. And Ferguson’s high valuation could prompt a sharp share price reversal if trading starts to deteriorate. Today the UK share trades on a forward price-to-earnings (P/E) ratio of 25 times.