However, the company now appears to offer a potent mix of a low valuation as well as high earnings growth potential. As such, it could be a surprisingly strong growth stock for the long term. Furthermore, its dividend growth potential may also be higher than many investors realise.

Growth potential

After a period of major change, Barclays now looks set to deliver on its growth potential. It is forecast to record a rise in its bottom line of 24% in the current year, followed by further growth of 28% in the next financial year. Considering many large-cap UK-listed banks are struggling to deliver positive earnings growth at the present time, double-digit growth could be a key differentiator for the stock. This could help Barclays to outperform its sector peers over the long run.

Despite its high growth potential, the bank trades on a relatively low valuation. Using last year’s earnings figure, it has a price-to-earnings (P/E) ratio of just 14.7. However, this is set to fall to as little as 9.1 providing it can deliver on its earnings growth forecasts for 2017 and 2018. With a price-to-earnings growth (PEG) ratio of 0.6, the stock appears to be exceptionally cheap when compared to its sector peers and to the wider index.

Dividend prospects

While investors in Barclays have been disappointed at the rate of dividend growth for a number of years, that situation looks set to change. Having prioritised restructuring and strengthening its financial position in recent years, the company is now set to deliver a rapid rise in shareholder payouts.

For example, in the next financial year its dividends are forecast to more than double. However, this puts its dividend coverage ratio at a still very sustainable 3.4, which suggests that there could be further dividend growth ahead. With the stock trading on a forward dividend yield of 3.2%, it appears to have a bright outlook as an income play.

More growth potential

Of course, there are other stocks which also offer double-digit earnings growth potential. Reporting on Wednesday was Breedon Group (LSE: BREE). The construction materials company delivered a positive trading update for the first 10 months of its financial year. Volumes and revenue were both ahead of last year, with the latter increasing by 56%. Volumes of aggregates increased by 47%, asphalt by 2% and concrete by 99%. Assuming normal weather conditions for the final part of the year, the company’s profit figure should be in line with current expectations.

Looking ahead, Breedon is forecast to post a rise in its bottom line of 14% in each of the next two years. This follows five years of double-digit earnings growth, which shows that the company may offer relatively resilient performance. Since it trades on a PEG ratio of 1.3, it appears to offer high growth at a very reasonable price.

The post Why Barclays plc is a growth bargain I’d buy and hold for 25 years appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Barclays. The Motley Fool UK has recommended Barclays. 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.

Plenty more to come

Designer footwear firm Jimmy Choo (LSE: CHOO) is a relative newcomer to the stock market launching in London in October 2014 at 140p with a market capitalisation of £546m. In the two years since, the company has seen its shares rise to 181p in the summer of 2015, before embarking on a year-long slide down to an all-time low of just 96p in June. I wrote in August that Jimmy Choo looked good value and the market didn’t disappoint, with the shares rising 26% since my article was published. So is it too late for new investors to buy, or is there more to come from this growing British brand?

In its half-year update, the luxury retailer reported a dip in pre-tax profits as a result of higher financing costs, but perhaps more importantly both revenue and operating profits were on the increase. The latter increased by a massive 43% to £25.3m, compared to £17.7m reported for the first half of 2015, with revenue up from £158.5m to £173.1m over the same period. I see the figures as encouraging and remain deeply optimistic over the company’s prospects.

The City seems to agree, with analysts in the Square Mile expecting the small-cap firm to post a 28% rise in underlying earnings for the full year to the end of December, with an equally impressive 25% improvement pencilled-in for next year. The shares trade on 22 times forecast earnings for the current year, falling to 17 times for 2017, which for me still represents good value given the rosy outlook.

There’s still Hope

Breedon Group (LSE: BREE) is the largest independent construction materials group in the UK, and remains one of the big players on the Alternative Investment Market (AIM). The company formerly known as Breedon Aggregates has gone from strength to strength in recent years with pre-tax profits ballooning from just £1.39m in 2011, to £31.28m last year. The company changed its name to Breedon Group after the acquisition of Hope Construction Materials Limited in August this year.

Interim results for the Derby-based group didn’t disappoint, with the company reporting a 19% rise in pre-tax profits for the first six months of the year to £20.9m, with revenues growing to £163m from £160.5m a year earlier. Breedon has a strong balance sheet with a record of strong cash generation in challenging markets and continues to seek out potential bolt-on acquisitions.

Market consensus suggests continued growth for the firm, with a 9% rise in earnings predicted for the full year to the end of December, followed by an even better 27% improvement anticipated for 2017. Breedon trades on a forward price-to-earnings ratio of 19 for 2017, a much lower rating than in recent years, and in my opinion offers growth at a very reasonable price.

The post Are these ‘hidden gems’ set for stardom? appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Exciting prospects

The UK’s largest aggregate company Breedon Aggregates (LSE: BREE) is a very exciting business. The management team has a proven track record as a number of its members were involved in Aggregate Industries, which was sold for £1.8bn to a Swiss company. The company has been growing earnings every year and this looks set to continue. Last year revenue rose 18.1% and earnings per share grew by a huge 63.4%. While focusing on organic growth, the company is also in the process of acquiring Hope Construction Materials. The deal has just passed through the Competition and Markets Authority and looks set to close at the end of the summer. The £336m deal will create a vertically integrated building materials group that owns over 60 quarries and over 200 ready-mixed-concrete plants. 

In good health

Spire Healthcare (LSE: SPI) is in a great place to take advantage of the increased need for medical care. The company has been building hospitals and is taking advantage of the increased demand for high quality medical care. It’s trading on a price-to-earnings ratio (P/E) of 21 after making a profit of £60m in 2015. Net debt stands at around £410m but this is manageable for a growing company. The shares are down roughly 10% in the last 10 days on Brexit fears. I think the company should grow in the future regardless of the result of next week’s referendum. City analysts like the stock and have price targets as high as 405p. 

Rapid growth

Yesterday Purplebricks (LSE: PURP) released its first set of results as a listed company. Revenue grew by 448% to £18.6m and gross profit also grew by over 400% to £10.6m. The company has had a fantastic year and if momentum continues then shares could fly during 2016. It’s looking to expand quickly and has plans to tackle the £3.3bn Australian market this year. Purplebricks also released an app in April that has had over 11,000 downloads so far and builds on the company’s market-leading technology. But although growing fast, the valuation is eye-watering and there’s scope for a serious crash in the share price if the company disappoints. However, you only have to look across the pond at companies like Amazon to see the premium investors will pay for disruptive businesses. 

These three companies all have great growth prospects and it’s no surprise to see a fund manager like Neil Woodford buying shares in each. So if high-flying growth stocks make up part of your portfolio then these three are worth a look as they offer good prospects. 

The post Why has Neil Woodford bought Breedon Aggregates Ltd, Spire Healthcare Group plc and Purplebricks Group plc? appeared first on The Twelfth Magpie.

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Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

These are exciting times for investors in BT (LSE: BT.A). That’s because the company is transforming its product offering and quickly becoming a dominant quad play operator. For example, it has acquired the UK’s largest mobile network, introduced BT Mobile, spent billions on its pay-tv offering and has invested heavily in superfast broadband. Furthermore, BT has offered huge discounts to new customers as it seeks to deliver rapidly rising customer numbers so it can cross-sell new services to them.

Clearly, all of the changes which BT is making could yield a superb return for its investors. However, they also come with considerable risk. Integrating a major mobile network into any business is likely to be a challenge, but doing so while undergoing rapid change in other areas means that BT may encounter unforeseen challenges. This could cause investor sentiment to come under pressure and mean that BT’s share price fails to beat the wider index. And with BT forecast to record a decline in its bottom line of 7% this year, its shares may already underperform the FTSE 100.

Very bright growth prospects

While BT may not beat the FTSE 100 this year, Breedon Aggregates (LSE: BREE) has an excellent chance of doing so. That’s largely because the aggregates company has very bright growth prospects and is forecast to increase its bottom line by 10% in the current year and by a further 26% next year. This rate of growth follows four consecutive years of earnings growth, which shows that Breedon may be a relatively reliable growth play.

Despite this, Breedon trades on a price-to-earnings growth (PEG) ratio of just 0.8, which indicates that if offers considerable capital gain potential. And with dividends due to commence next year, investor sentiment could pick up and allow Breedon’s share price to beat that of the wider index as the company’s confidence in its long term outlook improves.

Considerable upside potential

Meanwhile, Smart Metering Services (LSE: SMS) also has an excellent track record of growth. In the last four years it has been able to record an annualised growth rate of 44% and while growth of 13% next year may be something of a comedown after such a strong period of growth, it could still cause investor sentiment towards the metering services specialist to improve. That’s despite its shares having already risen by an impressive 27% since the turn of the year.

With Smart Metering Systems trading on a PEG ratio of 1.6, it seems to offer considerable upside potential. Certainly, there is a risk of downgrades to forecasts, but with the company expected to increase dividends per share by 23% next year, it appears to be confident in its long term outlook. Therefore, buying now could be a sound move ahead of potential FTSE 100-beating performance.

The post Will BT Group plc, Smart Metering Systems plc and Breedon Aggregates Ltd beat the FTSE 100 this year? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Through the summer, Woodford had actually been adding to his stake in Rolls-Royce, and, as recently as 22 October, one of his team was blogging bullishly on the long-term prospects of the currently-troubled company:

“It remains a quality business with superb technology, operating in an industry with very high barriers to entry. It has a substantial long-term forward order book which is the product of a well-executed long-term strategy, years of meticulous product development and a proven business model … we remain confident that the business can deliver to the long-term order book successfully and profitably”.

So, Woodford has done a major U-turn. The straw that broke the camel’s back was Rolls-Royce’s fifth profit warning in two years, released on 12 November. Woodford explains:

“The problems, which initially had affected the military aerospace and marine businesses, now appear to have spread to the core civil aerospace business. This has resulted in material downgrades to profit and cash expectations, and to such an extent that it is now likely that the dividend will be cut in 2016. This has shaken my confidence in the investment case and so the position has been sold across all mandates”.

With City analysts now forecasting a 20% drop in earnings for 2015, followed by a further plunge in excess of 40% for 2016, Rolls-Royce trades on a forward P/E of around 20 — well above the FTSE 100 long-term average of 14.

But it’s the medium-term outlook that concerns Woodford. He explains:

“Rolls-Royce civil aerospace engine business is pretty opaque and difficult to analyse … sensitive to assumptions around manufacturing and servicing costs and operational metrics such as the number of hours flown, reliability and operational longevity. Our decision to sell the shares reflects a significantly increased level of uncertainty about how these metrics will play out over the next 3 to 5 years in a way which will benefit Rolls’ shareholders”.

Of course, investors must decide for themselves how much weight to give to Woodford’s view of the company. And, in fact, not all his comments are negative. For one thing, he acknowledges his caution could be misplaced, and, for another, he rates Rolls’ leadership team highly. Also, he says part of the reason for selling was due to seeing better opportunities elsewhere.

Those better opportunities include healthcare firm BTG (LSE: BTG) and construction materials group Breedon Aggregates (LSE: BREE), both of which Woodford pumped more cash into during November on the back of positive updates.

BTG — which is reinvesting cash flows from its Specialty Pharmaceuticals and Licensing businesses in activities that support its goal of becoming a world leader in Interventional Medicine — has been described by Woodford’s team as “a compelling long-term growth story”.

Meanwhile, Breedon has “a strong management team with an excellent track record of creating shareholder value through organic growth and by consolidating the UK’s fragmented aggregates industry”. Indeed, Breedon has recently announced an acquisition that will transform it into the UK’s largest independent building materials group.

BTG and Breedon are both growing earnings fast, and appear to offer good value to me on forward price to earnings growth (PEG) ratios of 0.8 and 1.0, respectively.

The post Neil Woodford Dumps Rolls-Royce Holding PLC And Buys More BTG plc & Breedon Aggregates Ltd appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended BTG. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Dart Group

Dart Group is an aviation services and distribution group, which has doubled sales and quadrupled profits since 2012. Over the same period, the company’s shares have risen a staggering 710%. 

Dart has continued to outperform this year. Year to date the company’s shares are up 73% excluding dividends, as the group’s operating performance has continued to improve. According to Dart’s first-half trading update, released last week, pre-tax profit more than doubled in the first half following a very strong summer season. 

Dart said pre-tax profit for the six months to the end of September was £147m, up from £72m as reported a year earlier. Revenue rose to £1bn, from £902m as reported last year. 

Unfortunately, City analysts expect Dart’s pre-tax profit to fall by a third next year, indicating that the company’s shares might not have much further to go. Group earnings per share are set to fall 35% next year, and based on the figures for next year Dart is trading at a 2016 P/E of 14.8, which looks expensive considering the company’s contracting earnings. The shares support a dividend yield of 0.7%. 

Direct Line

Direct Line has only been a member of the FTSE 100 for 13 months, but over the past year the company’s shares have outperformed the wider FTSE 100 by 35% excluding dividends. 

Direct Line’s outperformance has been driven by the company’s strong revenue and profit growth in a tough market. The insurer recently announced that during the three months to September 30, its volume of gross written insurance premiums totalled £844m, compared with £820m in the corresponding quarter.

Moreover, Direct Line guided for a combined operating ratio for 2015 in the range of 92% and 94% for ongoing operations. A ratio below 100% indicates an underwriting profit while a ratio above that level indicates a loss. Direct Line has also hinted that the company could announce a special dividend for investors alongside full-year 2015 results. 

As insurance is a relatively stable market, Direct Line should be able to maintain its growth trajectory into next year. So there could be further gains for investors throughout 2016. 

Direct Line currently trades at a forward P/E of 13.1. The dividend yield is 4.9%. 

Breedon Aggregates

Breedon Aggregates is one of the largest building materials firms in the UK and, as a result, the group effectively controls the highly cyclical UK aggregate and concrete market. Breedon’s shares have surged 38% over the past year as the company benefits from record demand from the UK’s booming construction sector.

Breedon has built its presence through a series of bolt-on acquisitions, the largest of which was the £336m takeover of rival Hope Construction Materials. The enlarged group is expected to have revenues approaching the £600m mark.

City analysts expect Breedon’s earnings per share to jump 42% to 2.3p this year and a further 21% to 2.8p next year. However, these forecasts mean that Breedon is trading at a 2016 P/E of 23.2, and I’m wary of paying such a high valuation for a cyclical business. 

The post Can Dart Group PLC (+73%), Direct Line Insurance Group PLC (+33%) & Breedon Aggregates Ltd (+38%) Deliver Again In 2016? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.