Placing growth stocks within an ISA is quite a sensible strategy. That’s because capital gains within an ISA are tax-free. So for example, if you were lucky enough to enjoy a ‘10-bagger’ and turn £2,000 into £20,000, you would be able to keep 100% of the proceeds, instead of having to hand over a chunk of your gains to the tax man.

With that in mind, here’s a look at two growth stocks that I believe have excellent ISA potential.

Boohoo.com

Clothing manufacturer Boohoo.com (LSE: BOO), which offers the latest fashion at affordable prices, is growing at a stunning rate. Indeed, between 2014 and 2017, sales surged from £110m to £295m, a compound annual growth rate (CAGR) of nearly 40%. Profitability in that time climbed significantly higher too, with net profit almost tripling from £8.4m to £24.5m. Can the company keep this growth rate up? I believe it can.

Boohoo released a strong trading update in January, in which it revealed that for the first 10 months of the year, total group revenue had risen to £491m, a huge 97% increase on the same period last year. Of particular note was the performance of subsidiary PrettyLittleThing, which saw its top line rise an incredible 232%, taking year-to-date revenue to £146.4m. Management advised that full-year group revenue is likely to be up around 90% on last year, lifting its guidance from a previous estimate of 80%. City analysts currently have a figure of £563m pencilled in.

Boohoo shares have been a spectacular investment over the last three years, rising from 27p in mid-March 2015 to 175p today. However, if the company continues to grow at such a strong rate, I think there could be plenty more to come from the shares. The stock certainly isn’t cheap, trading on a forward-looking P/E ratio of around 48, however, given that the shares have pulled back around 30% over the last six months, I think now could be a good time to take a closer look at the business.

Brooks MacDonald

If Boohoo.com looks too expensive for you, take a look at Brooks MacDonald (LSE: BRK). It’s an independent investment management company that offers a range of specialised services to individuals, pension funds and institutions. Fund management may not be the most exciting business in the world, but don’t let that put you off – over the last decade the shares have returned around 675%.

Half-year results, released yesterday, showed that the group has momentum at present. Funds under management climbed 26% on the previous year, to £11.7bn, with revenue rising 11% to £48.8m. Earnings per share growth was a little soft at just 1.2%, however, the company did increase its half-year dividend by 13% to 17p per share. Chief Executive Caroline Connellan commented: “Following an encouraging first half of the year and continued momentum in the early weeks of the second half, we remain confident of the significant growth opportunities open to us.”

With analysts forecasting full-year earnings of 114p per share, the forward P/E here is 18.7. A prospective dividend yield (also tax-free within an ISA) of 2.3% is on offer. For a company that should enjoy tailwinds from rising investment markets over time, those metrics look reasonable to me.

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Edward Sheldon owns shares in boohoo.com. The Motley Fool UK has recommended boohoo.com. 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.

That’s particularly the case with smaller companies, where valuations may not have risen by as much as their larger stock market peers in recent years. With that in mind, here are two small-cap stocks which could deliver high returns this year.

Encouraging performance

Reporting on Tuesday was SIPP provider Curtis Banks (LSE: CBP). The company’s performance in 2017 was encouraging, making strong progress with the integration of Suffolk Life Group. It traded in line with management expectations, with new SIPPs during the year amounting to 8,798, and overall SIPP numbers increasing to 76,474. Attrition rates on own SIPPs have remained in line with previous years at 5.7%, with the company’s assets under administration totalling £24.7bn, versus £20.4bn last year.

Looking ahead, Curtis Banks is expected to report a rise in its bottom line of 12% in the current year, followed by further growth of 10% next year. Despite such a strong rate of growth, its shares trade on a price-to-earnings growth (PEG) ratio of only 1.5, which suggests that there could be upside potential ahead.

In addition, the company has improving income prospects. It’s expected to have a dividend yield of around 2.3% in the current year. But with dividends due to be covered 2.5 times by profit, there could be significant growth ahead here. As such, the total return on offer could be high in the long run.

Improving outlook

Also offering investment potential within the wealth management space is Brooks Macdonald (LSE: BRK). The company’s financial performance is linked to that of the stock market, so it’s perhaps to be expected that it’s forecast to deliver strong earnings growth in the near term. In fact next year, the company’s bottom line is expected to rise by 22%, which puts it on a PEG ratio of 0.6. This suggests that it may be deserving of a higher valuation if it’s able to deliver on the upbeat forecasts.

Shareholders are expected to benefit from rising earnings via a higher dividend. In fact, shareholder payouts are forecast to rise by 22% in the next financial year. This would put the stock on a dividend yield of 3.1%, with dividends being covered 2.3 times by profit. This suggests that further double digit dividend growth could be on the cards, which could make Brooks Macdonald a worthwhile income play.

Certainly, the company may not offer the stability of other income stocks over the long run. But for investors who are concerned about inflation, it could be a realistic alternative.

The post These promising small-cap stocks could be millionaire-makers in 2018 appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Brooks Macdonald

Brooks Macdonald (LSE: BRK) is an independent investment management company offering a range of specialised investment management services to individuals, pension funds, institutions, charities and trusts. The group was founded in 1991 and had £10.5bn in funds under management at the end of June.

Listing on the AIM market in 2005, it’s fair to say the stock has been a fantastic long-term performer, rising from a listing price of 140p to 2,150p today, an incredible gain of over 1,400%. Investors have also been rewarded with a steady stream of increasing dividends, and while the current yield isn’t super high, at 1.9%, the payout has grown by an average of 17% per year over the last five years.

The group released audited results for the year ended 30 June today, revealing a solid set of numbers. Total discretionary funds under management increased 25.9%, pushing revenue up 12.7% to £91.7m. Underlying earnings per share came in ahead of analysts’ expectations at 115.8p, a 31.7% rise on last year, and the company hiked its dividend by another 17% to 41p per share.

Furthermore, the wealth manager announced the disposal of its property management business Braemar Estates, for a cash consideration of £1.9m. Chief Executive Caroline Connenllan commented: “The disposal of our property management business will enable us to focus more closely on our core offerings and is expected to contribute over time to improved margins.”

After trading near 2,600p in May, Brooks Macdonald’s share price has retreated by almost 20% in the last few months. At the current share price, the stock trades on a trailing P/E ratio of 18.6, which looks reasonable for a company growing at such an impressive rate. This is a stock I’m definitely going to keep an eye on.

RPC Group

Also having lifted its dividend payout by a significant amount over the last few years, is packaging specialist RPC Group (LSE: RPC).

RPC has made a string of key acquisitions recently, and that has resulted in the company’s top line surging from £1,047m to £2,747m in the space of just three years. In March, RPC announced the acquisition of Letica Group, which it believes will provide strong US exposure and a “meaningful presence outside Europe.”

Sometimes, when companies expand too quickly, they can run into difficulties integrating the businesses. A good example is cyber security specialist NCC Group, which after making several acquisitions in a short space of time, released back-to-back profit warnings as it lost major contracts. However, RPC recently advised that it will focus on integrating its recent acquisitions for now, and will not be doing any further deals this financial year, which seems like a sensible strategy to me.

The company lifted its dividend by an incredible 50% last year, and City analysts expect growth of 10.6% and 9.8% this year and next. The current yield is 2.6%, and consensus earnings estimates of 69p per share place the stock on an undemanding P/E ratio of 13.4, which looks good value to me.

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Edward Sheldon owns shares in NCC. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended RPC Group. 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.

This is the niche £1.7bn market cap firm Burford Capital (LSE: BUR) has discovered and exploited with aplomb. In return for a stake of any proceeds from a positive judgment, the company will finance litigation that may drag out over years, bounce from jurisdiction to jurisdiction, and cost many millions of dollars.

Over the past year alone the company’s stock has risen 169% as revenue and profits have grown by double-digits due to corporate clients and law firms turning to litigation finance as an attractive means of risk and budget management. In 2016 the company recorded a 59% rise in income to $163m and a 75% jump in post-tax profits to $115m.

I reckon there’s plenty of room for the company to continue growing at this clip in the coming years. For one, the litigation market across the globe is absolutely massive and Burford has proven itself a valuable partner to all parties involved in complex international litigation scenarios.

Furthermore, the company is quickly ramping up investment to capture a larger share of this market. Last year it invested $378m in new litigation commitments, a marked increase on the $206m invested in 2015 or $153m invested in 2014. It may take several years for these new cases to pay off, but a stellar track record suggests they will. And with a return on equity of 21%, management has proven it invests wisely with long-term returns in mind.

Burford’s shares are trading above historical valuations at 20 times forward earnings, but with massive cases winding their way through courts, I don’t believe this is an extreme valuation given the company’s growth potential.

Time to invest in this investor? 

Another fast growing AIM-listed business with plenty of room to run is asset manager Brooks Macdonald (LSE: BRK). The £300m market cap firm has done phenomenally well of late thanks to above-market investment returns from many of its funds, as well as net fund inflows.

In the quarter to March assets under management (AuM) rose 6.45% quarter-on-quarter to £9.9bn due to £291m of new business and £311m in investment returns. For fund managers, increased AuM is of course their lifeblood and means of improving revenue and profits. And steadily rising AuM is feeding through to the company’s income sheet with revenue up 17% in H1 to £45m and underlying pre-tax profits up 24% to £8.87m.

The reason I’m bullish on Brooks Macdonald when many other fund managers are struggling is that the company is growing rapidly from a small base both by consistently posting great investment returns and, perhaps even more critically, expanding distribution links.

By signing new strategic alliances and bringing on-board higher numbers of introducing firms, the company is putting its funds in front of an increasingly large group of retail and institutional investors. With great fund performance and increasingly wide distribution links I’m definitely interested in Brooks Macdonald if its shares dip from their current 22 times forward P/E.

The post Why this super growth stock has room to run even after returning 150% in the last year appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Improving performance

One beneficiary of rising share prices is likely to be Brewin Dolphin (LSE: BRW). The investment management company reported an upbeat set of half-year results on Wednesday. They show that it was able to increase total funds under management by 6.8%. Its discretionary funds rose by 9.4%, which compares to a 6.1% increase in the FTSE 100 index. As such, it appears as though the company’s sales strategy is working well at the present time.

The company’s adjusted profit before tax of £32.4m was 14.1% higher than in the same period of the prior year. The acquisition of Duncan Lawrie Asset Management could have a positive impact on the company’s profitability in future. Capital is available for further M&A activity to complement organic growth, with Brewin Dolphin enjoying an increasingly dominant position within the UK wealth management space.

Looking ahead to the rest of the year, Brewin Dolphin is expected to record a rise in its earnings of 8%. This is due to be followed with growth of 12% next year, which puts the company’s shares on a price-to-earnings growth (PEG) ratio of just 1.2. This indicates that now could be the perfect time to buy them – especially if share prices continue to move higher.

Low valuation

Also offering growth at a reasonable price within the wealth management industry is Brooks Macdonald (LSE: BRK). As with Brewin Dolphin, it is likely to benefit from higher share prices. While there is potential for the FTSE 350 to experience a pullback if political uncertainty in the US and Europe continues to build, the company’s valuation indicates that it offers a sufficiently wide margin of safety to merit investment. For example, it trades on a PEG ratio of just one, thanks to its double-digit earnings growth outlook over the next two years.

As well as growth potential, Brooks Macdonald also offers upbeat income prospects. It may only yield 1.9% at the present time, but dividends per share are expected to rise by 19% next year. This puts it on a forward dividend yield of 2.2%. Since dividends are due to be covered 2.4 times by profit, there seems to be scope for a further rapid rise in shareholder payouts over the medium term. This mix of improving income prospects and a low valuation mean that it could be a star performer within an enticing sector.

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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. 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.

Do you struggle to decide whether to go for growth shares or for dividend income? Here are two that are offering both.

Where there’s bricks

Forterra (LSE: FORT) only floated on the stock market in April 2016, and just a couple of months later its shares were on a Brexit-induced slide. But investors thinking that leaving the UK would damage the prospects for a company that makes bricks, concrete and other building products, while we’re facing our toughest housing shortage for a generation, must have been barmy.

The price recovered quickly, and 2016 results released Wednesday were in line with the firm’s expectations at IPO time. Pre-tax profit before exceptionals was up 3.8% to £54.3m with EPS on the same basis up 4.4% to 21.5p.

Impressively, pre-exceptional operating cash flow climbed by 29.7% to £69.8m, which helped get debt down ahead of the firm’s plan — net debt of £92.3m at the end of December represented 1.3 times adjusted EBITDA.

Forterra’s maiden dividend came in at 5.8p for a yield of 2.8% on the current share price of 206p, which is a pretty decent start.

Chief executive Stephen Harrison told us that “2017 has started well… with brick volumes for the first two months ahead of last year.” He added that the company “continues to see strong activity levels from the major housebuilders and positive indications from these customers for at least the first half of the year.“

EPS forecasts suggest modest growth this year and next, giving us P/E multiples of 9.1 and 8.3 — and a progressive dividend should yield 4.6% and then 5.2%.

On top of a solid, if unexciting, business, I’d rate that as a buy — though I would like to see that debt coming down further.

A great decade

Shares in Brooks Macdonald Group (LSE: BRK) are turning into a great long-term investment, bringing home a 630% gain over the past 10 years, plus modest dividends.

At 2,017p today, we’re looking at forecast P/E ratios of around 19 for this year and 16 next, which is higher than the FTSE 100 long-term average of about 14, so does that mean the shares are a bit too expensive now? After examining the investment manager’s first-half results, I don’t think so.

The £9.33bn in discretionary funds under management at December 2016 was 19% ahead of the same stage in 2015, and revenue was up 17% to £45.34m. Underlying pre-tax profit gained 24% to £8.87m, with underlying earnings per share putting on 22% to 51.83p. The interim dividend was lifted by 25% to 15p.

For the full year, there’s a 2.2% dividend yield on the cards. And though that’s not a high one, it would be 23% above last year’s, and there’s a further 19% uplift pencilled-in for 2018. That’s strongly progressive and way ahead of inflation, and it’s the kind of dividend I really like to see.

There is a bit of uncertainty ahead as founder and chief executive Chris Macdonald is to step down in April — chairman Chris Knight described him as the “principal architect of the group’s success.” We’ll have to wait and see what new boss Caroline Connellan brings, but hopefully the transition should be a smooth one.

The City doesn’t seem perturbed, putting out EPS growth forecasts of 20% this year and 18% next, for a PEG of an attractive 0.9. That adds healthy growth to what I see as an attractive long-term dividend, and I think that makes for a bargain.

The post 2 great growth stocks with tasty dividends too appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

A key reason for this is its strategy. Lloyds has worked hard to shed inefficient assets, cut costs and become financially stronger in recent years and while the process of change has been painful, it has resulted in a bank that’s much stronger and has superior growth prospects than many of its peers. And with Lloyds close to full health, the government’s share sale is now on the near-term agenda.

With Lloyds trading on a price-to-earnings (P/E) ratio of just 9.2, it seems to offer significant upside potential. Although its shares may prove to be volatile in the short run and could therefore fall back somewhat, for long-term investors such a high quality bank may not be on offer at such a low price indefinitely. As such, Lloyds appears to be a once-in-a-lifetime buy at the present time.

Bright prospects

Also offering upbeat growth potential is banking sector peer Arbuthnot (LSE: ARBB). Its share price has risen by 8% in the last three months and while some of this is due to improved sentiment towards the wider banking sector, it could also be due to the impressive forecasts that Arbuthnot has for the next two financial years.

For example, Arbuthnot’s pre-tax profit in 2017 is expected to be twice as high as it was in 2015 and with the bank’s shares trading on a forward P/E ratio of only 12, the market doesn’t yet appear to have priced-in such strong growth. Furthermore, with Arbuthnot having a forward yield of 2.3% and yet being expected to pay out just 28% of profit as a dividend next year, its prospects as an income stock remain very bright. And while right now may not be a once-in-a-lifetime opportunity to buy a slice of Arbuthnot, it still nevertheless could turn out to be a strong long term performer.

Capital gains ahead?

Meanwhile, the last year has been incredibly volatile for investors in Brooks Macdonald (LSE: BRK). The asset manager’s share price has been akin to a rollercoaster, with it up by as much as 24% as global stock markets have fluctuated wildly. Although further volatility seems very likely, for long-term investors such a situation could present an opportunity to buy a slice of the business at a more attractive price.

While Brooks Macdonald is forecast to record a fall in its earnings of 1% this year, it’s expected to bounce back with growth of 18% next year. And with its shares trading on a price-to-earnings growth (PEG) ratio of just 0.9, they appear to offer significant upside potential. Although this may not constitute a once-in-a-lifetime buying opportunity, the prospect of significant capital gains is clear.

The post Are Lloyds Banking Group plc, Brooks Macdonald Group plc and Arbuthnot Banking Group plc once-in-a-lifetime buys? appeared first on The Twelfth Magpie.

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As a result, stocks markets across the globe (China excepted) have soared, with all-time highs being reached. One company that is benefitting from this is wealth management business, Brooks Macdonald (LSE: BRK). It has seen its bottom line rise at an annualised rate of 22.7% during the last four years, with the bull market during that period meaning that its fee income and profitability has soared. And, looking ahead, further growth it set to be delivered, with Brooks Macdonald expected to post earnings growth of 18% next year. This, when combined with its price to earnings (P/E) ratio of 20.6, equates to a price to earnings growth (PEG) ratio of just 1.1, which indicates that its valuation is very appealing at the present time.

Similarly, Virgin Money (LSE: VM) has benefitted from an improving UK economy, with its loan book increasing in size and its brand becoming better known and more diversified in recent years. Looking ahead, its growth appears to be on the up, with Virgin Money’s bottom line expected to rise by as much as 47% next year. Certainly, an interest rate rise later this year may hurt demand for new loans, but with Virgin Money having a PEG ratio of just 0.3, it appears to have a sufficiently wide margin of safety to take this into account. And, with dividends expected to increase by 90% in 2016, Virgin Money could quickly become a strong income play, too.

Of course, neither Brooks Macdonald nor Virgin Money offer the size and scale of Santander (LSE: BNC) (NYSE: SAN). It has endured a challenging period, with the Eurozone’s troubles weighing on its financial outlook. However, it now has a much improved capitalisation ratio following its 2014 placing and is committed to maintaining the regional diversity that remains a major selling point for potential investors in the bank.

Looking ahead, Santander is set to continue to deliver double-digit earnings growth and, as such, it seems to be worthy of a considerably higher rating than the P/E ratio of 12.6 on which it currently trades. And, with Santander set to increase dividends by around 13% next year, it could become an even more appealing income stock over the medium to long term, too, with its yield of 3% likely to rise in future.

The post Why These 3 Stocks Are Set To Sizzle This Summer! Banco Santander SA, Brooks Macdonald Group plc And Virgin Money Holdings (UK) PLC 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.