Fundamentally attractive

ConvaTec is a stock I originally tipped far too soon after it debuted on the stock market in 2016. I’m generally cautious on new arrivals until they’ve built up a record as a publicly-listed company, but I was swayed by CTEC’s market-leading products and technologies for the management of chronic conditions.

The company soon reported a number of operational issues, and the share price suffered as a result. However, I continue to see the business as fundamentally attractive, with ageing populations being a structural driver for growth. The shares have climbed around 50% since I kept faith with the company earlier this year. Events since, including a Q3 trading update today, have persuaded me there’s more to come.

On track

With a new chairman and chief executive, ConvaTec reported a Q3 performance in line with management expectations, and said its transformation initiative is on track. Advanced wound care produced organic revenue growth of 3.6% for the period, and with ostomy care (+3%), continence and critical care (+8%), and infusion devices (+4.3%), there was growth across all franchises.

Management left its guidance for the full-year unchanged. Namely, group organic revenue growth of 1% to 2.5%, and an adjusted EBIT margin of 18% to 20%, including spend associated with the transformation initiative and costs to implement new medical device regulations.

Plans and progress

Highly-rated chief executive Karim Bitar, who joined the company just a month ago, said: “I look forward to giving an update on our plans and progress next year.” I’d expect this to be alongside full-year results in February.

At a share price of around 200p, CTEC trades at 20 times current-year forecast earnings. I’m hopeful Bitar’s plans for growth, an ongoing reduction of debt, and an improving business performance could see the share price continue to head north through 2020.

Portfolio rationalisation

FirstGroup announced its annual results back in May, along with a strategy update for its portfolio of five market-leading public transportation businesses in the UK and North America. It intends to make the latter its core market, centred on its contract-based operations First Student and First Transit. It said a formal sale process is underway for its iconic Greyhound intercity coaches business.

In the UK, it’s pursuing structural alternatives to separate its First Bus operations from the group. The long-term future of its First Rail business isn’t entirely clear yet, as management awaits the outcome of the UK government’s review into the structure of the whole rail industry.

Unlocking value

There’s been no further news on the portfolio rationalisation since the plans were announced in May. Meanwhile, at a share price of 129p, the group, as is, trades at 8.9 times forecast current-year earnings.

I’m convinced management is pursuing a strategy that will ultimately unlock value for investors, and I expect to see the shares rate higher through 2020. We should have an update on the rationalisation of the portfolio as early as the company’s half-year results on 14 November.

The post 2 FTSE 250 stocks I’d buy for 2020 appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the 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.

High drama

Over the last couple of years, Provident Financial’s shareholders have witnessed a catalogue of unwelcome dramas. A bungled attempt to change the operating model of the group’s doorstep lending division, upheaval in the boardroom, investigations by the Financial Conduct Authority (FCA), a rescue rights issue, fighting off a hostile takeover bid by small-cap upstart Non-Standard Finance — you name it, Provident’s shareholders have probably seen it!

Confidence in recovery

Today’s half-year results will have come as a welcome relief for investors, with adjusted operating profit stable at £74.9m. Exceptional costs were much reduced, despite expenses of £23.6m to stave off Non-Standard Finance’s hostile bid.

Provident delivered strong new business volumes while maintaining stable delinquency rates, and chief executive Malcolm Le May described the results as “in line with our internal plans.” In further good news, he added: “We are pleased to announce reinstatement of an interim dividend of 9p per share, which reflects our confidence in the ongoing recovery of the group.”

With the company also announcing the FCA investigation into its Moneybarn business “is close to being concluded with the expected financial impact within the previously announced financial provisions,” the shares responded positively when the market opened this morning.

Currently trading at 435p — up 4.7% on the day — the stock has a forward price-to-earnings (P/E) ratio of 8.8, and a prospective dividend yield of 6.2% on a forecast full-year payout of 27p. The firm’s turnaround now looks close to gaining serious momentum, and the current valuation is very attractive, in my opinion. I rate the stock a ‘buy’.

Strong turnaround potential

I made a big mistake in first tipping ConvaTec far too soon after its stock market debut. However, I’ve continued to see value in the stock at lower prices, due to it owning some best-in-class medical devices, notably in ostomy care and wound care.

The last time I wrote about the company in March, the share price was 134p, the forward P/E was 12.5, and the prospective dividend yield was 3.25%. Since then, the company has announced the appointment of its new permanent chief executive and issued a first-quarter trading update.

Karim Bitar, poached from animal genetics specialist Genus, will take up the chief exec role on 30 September. It looks a good appointment as he’s highly regarded for leading transformational change at similar businesses.

Meanwhile, the company’s Q1 results in May were sufficiently encouraging to bolster my view that there’s strong turnaround potential here. The shares are up 15% to 154p since March — forward P/E now 14.8 and prospective dividend yield 2.9% — but I continue to rate the stock a ‘buy’.

The post 2 FTSE 250 turnaround stocks I’d buy right now appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the 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.

In amongst the stocks that deserve to be cheap, I often find a handful of shares that are unloved but good businesses. Potential bargains.

My latest trawl through the FTSE 250 mid-cap index has unearthed three dividend stocks I think offer good value for buyers at current levels.

A turnaround buy?

Medical technology company ConvaTec Group (LSE: CTEC) has been a disappointing performer since its 2016 flotation. Like many such firms, it floated at a demanding valuation that became unsustainable when growth rates disappointed.

Despite this, I think it’s fundamentally an attractive business. ConvaTec makes a range of medical products used in areas such as wound care, ostomy, incontinence and infusion. Many of the firm’s products are disposable or consumable, making them repeat buys for patients and hospitals.

A trading statement on Friday confirmed that growth remains challenging. Sales fell by 2% to $430.6m during the first quarter. However, full-year expectations are unchanged and ConvaTec expects to generate an adjusted operating profit margin of 18%-20% this year — a solid result.

The shares now trade on 12 times forecast earnings and offer a 3.5% dividend yield. With earnings backed by strong cash flows, I think ConvaTec offers decent value at this level.

Retail isn’t dead

Retailers with big high street chains are out of favour at the moment. But in my view there are likely to be some long-term winners in this sector.

One retailer I own myself is Dixons Carphone (LSE: DC). This firm is the UK’s largest retailer of home electricals, computers and mobile phones. It also has significant market share in Scandinavia and Greece.

Sales were steady over the peak Christmas period, and newish chief executive Alex Baldock is working hard to expand online and build a larger customer credit business — a key area of growth.

Consumer demand for the latest gear is still strong and Dixons Carphone’s scale means it can price competitively. In my view, sales are unlikely to collapse unless unemployment or interest rates rise. As far as I can see, there’s no sign of either at the moment.

With the stock trading on seven times forecast earnings and offering a 5.2% dividend yield, I rate this retailer as a buy.

This wheeler-dealer offers a 6% yield

City firm TP ICAP (LSE: TCAP) isn’t exactly a household name. But it is the world’s largest interdealer broker. What this means is that its teams of dealers act as middlemen, negotiating financial deals between clients such as investment banks and oil traders.

The rise of electronic trading has put pressure on this business model, which is changing to include more technology and data services. But TP ICAP’s scale and expansion into the oil market have helped the firm to adapt. Although market conditions can affect the group’s profits, this £1.6bn City firm ended last year with net cash of more than £600m.

The shares have halved in value since the start of 2018 and now trade on 9 times forecast earnings, with a 6% dividend yield. I think this is probably too cheap and would rate the shares as a buy.

The post 3 top FTSE 250 value stocks I’d buy today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Dixons Carphone. 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.

However, I made an exception with medical products and technologies group ConvaTec (LSE: CTEC) when I wrote bullishly about it within six months of its October 2016 flotation. The tip has been a disaster. The share price was 303p at the time and is now around 134p.

I got ConvaTec badly wrong. But have we finally reached a point where the time to buy is right?

Attractive business characteristics

I’m a fan of the healthcare sector generally, due to strong growth fundamentals provided by ageing populations. And I felt ConvaTec was a particularly attractive proposition, because of its focus on “therapies for the management of chronic conditions,” and its “leading market positions in advanced wound care, ostomy care, continence & critical care, and infusion devices.”

It was these business characteristics, together with a strong set of maiden annual results as a listed company, in March 2017, that persuaded me to tip the stock. However, things soon went wrong.

Profit warnings

The company issued a shock profit warning in October 2017. It said this was largely due to supply issues, arising from a move of manufacturing lines from the US to the Dominican Republic. Temporary and fixable, I thought, and remained bullish on the stock at 180p.

A year later, we had a second profit warning. This was accompanied by the departure of chief executive Paul Moraviec with immediate effect, and non-executive director Rick Anderson (former chairman of Johnson & Johnson) taking the helm as interim chief executive. The company said the primary reason for this profit warning was a change in inventory policy by the biggest customer of its infusion devices division. These things can happen, I thought, and remained bullish on the stock at 140p.

Turnaround

Last month, ConvaTec released its latest annual results and interim boss Anderson’s strategic review of the business. He had some blunt things to say about the company’s commercial and operational execution failures, and he reckoned investment of $150m over three years is needed to put things right.

On the positive side, he concluded: “The fundamental opportunities of our markets, products and brands remain sound.”

Time to buy now right?

There are other positives. Despite its troubles, ConvaTec has remained profitable and cash generative. Current net debt of $1,305m and a net debt/EBITDA ratio of 2.7 are down from $1,510m and 3.0 two years ago. It’s forecast to continue being profitable and to maintain its dividend at $0.057 (4.35p at current exchange rates), giving a handy yield of 3.25%.

When I first tipped the stock, the forward price-to-earnings (P/E) ratio was 19.7 (on a par with sector peers like Smith & Nephew). Today, it’s just 12.5.

I made a big mistake in allowing my enthusiasm for the sector to override my usual caution on private equity flotations, and in tipping ConvaTec far too soon after its stock market debut (lesson learned). However, having got it badly wrong, I do think the current valuation and turnaround prospects offer considerable medium-to-long-term upside potential. As such, I feel the time to buy could now be right.

The post I got this FTSE 250 stock badly wrong. But could the time to buy now be right? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
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G A Chester has no position in any of the 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.

But has the move been over-done? What’s the panic about anyway? Let’s take a closer look to see if the stock’s worth buying now that it’s on sale.

A nasty habit

ConvaTec arrived on the stock market in the autumn of 2016 and has seemingly developed a nasty habit of issuing pre-winter profit warnings! One in October 2017 pulled the rug from under the share price and, blow me down, the company repeated the profit-warning trick last October, causing another downward lurch in the shares.

Today’s sharp move lower means the current share price around 120p is more than 40% below the initial listing price back in 2016. For those buying at the time of the IPO, this hasn’t been a good investment – so far.

Yet the report today seemed encouraging to start with. Revenue in 2018 grew 3.8% year-on-year and earnings before interest and tax (EBIT) moved 8% higher. However, it doesn’t take long for the negatives to appear. Adjusted EBIT dropped by 6%, which the firm explains, was because of higher investment “in commercial activities” and “negative (product) mix,” which more than offset any benefits from the increased revenue. The EBIT profit margin dropped to 23.4% from 25.9% the year before, suggesting the firm’s trading niche could be subject to erosion from competition or, perhaps, from weaker demand.

Then there’s a sub-heading in the report: “Actions to address strategy execution issues,” which suggests the main challenges could be internal. In essence, the firm plans to throw money at the problem in order to restructure. That’s disappointing. I want my recently IPO’d companies to be at tip-top efficiency with a proven business model, not arriving on the stock market floundering, trying to make the business work.

Refreshing honesty

Interim chief executive Rick Anderson is direct in the report. “These are disappointing results,” he said. “It is clear that swift and strong action is required to address the failures in execution which have caused the Company to underperform.”

I must say, I like this approach, which is so refreshing compared to some of the old flannel a lot of company directors spout out when they are trying to put a positive spin on a poor performance. A direct assessment like Anderson’s tells us exactly where we are and allows the share price to move where it needs to go, thus minimising the chances of a false market if things are interpreted too positively by investors.

The company is searching for a permanent chief executive to appoint, which could be positive. I like change at the top in businesses because it can usher in a period of renewed vigour and progress. I also like the sector, which is known for its defensive, cash-generating characteristics. Meanwhile, Convatec has a plan to invest and to sort out its execution issues. I think there’s a reasonable chance that the worst of the bad news could be behind us. So I’m tempted to hold my nose, block out the fear, and to dip my toe in the water by grabbing a few of the shares.

The post Is this dividend-paying mid-cap a steal, down 20% today? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

Missed expectations

Year-to-date, shares in medical products company Convatec (LSE: CTEC) have lost 21%. Investors have rushed for the exit following a series of worrying developments including a profit warning and immediate departure of its CEO a few weeks ago.

However, over the longer term, I believe this business should be able to rebuild its reputation because the demand for wound care products is only going to expand. Analysts are predicting sector growth of around 4% per annum.

These tailwinds should give Convatec room to stabilise itself in the years ahead. City analysts are expecting earnings per share (EPS) to come in at $0.16 for 2018, putting the shares on a forward PE of 12.9. In my view, this isn’t too demanding, especially for a defensive healthcare company.

Looking past Convatec’s short-term, self-inflicted issues, I think now could be a good time to snap up shares in the troubled medical group.

Growing market

I’m optimistic about the outlook for security group G4S (LSE: GFS) for similar reasons. The company’s problems are mainly self-inflicted, and the broader global security market is expected to grow at a high single-digit annual rate for the foreseeable future. 

As one of the largest private security firms in Europe, with a foothold in the United States and other regions around the world, G4S is well-placed to benefit from this growth.

Recently, shares in the firm have come under pressure after the UK government was forced to take control of Birmingham prison, which it has been running since 2011 on a 15-year contract. This is just a small part of the group’s global operation, but it seems investors are worried about the impact the development will have on the company’s reputation.

While it’s not ideal, I still think the shares are attractive, primarily because they are changing hands at a highly-discounted 10.6 times forward earnings, and support a dividend yield of 5%. After G4S sorts out its problems, I reckon the shares could re-rate to a higher multiple.

Brexit jitters

My last 52-week low pick is recruiter Hays (LSE: HAS). After adding around 15% during the first eight months of 2018, shares in Hays are now trading down 20% on the year after issuing a weak trading update at the beginning of October.

I think this could be an excellent opportunity for value-seeking investors. The sell-off has taken the shares down to a valuation of just 12.5 times forward earnings. Previously, the stock was trading at a forward P/E of nearly 20, which tells me that recent decline seems to be based on Hays’ premium valuation more than anything else. Indeed, City analysts are still expecting EPS growth of 11% for fiscal 2019. Further growth could be on the cards in the years after as well, as the global economy continues to expand. 

Added to the attractive valuation, there’s a 4.5% dividend yield on offer, backed up by £80m of net cash on the balance sheet.

The post 3 stocks trading at 52-week lows I’d buy today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Looking ahead, further volatility could be on the cards for both stocks. At the same time though, they may now offer wider margins of safety and could therefore provide more compelling investment potential for the long term.

Uncertain outlook

Convatec’s profit warning was due to a change in inventory policy by the biggest customer in its Infusion Devices franchise. This is expected to have a material negative impact on revenue in the fourth quarter of the year of $18m-$23m. The company also experienced challenging market dynamics in specific markets in its Advanced Wound Care segment which contributed to a difficult period for the business. As such, it now expects full-year organic revenue growth of between 0% and 1%. This is down from previous guidance of between 2.5% and 3%.

Alongside a profit warning, the company also announced that its CEO, Paul Maroviec, has decided to retire. He has stepped down as CEO with immediate effect and will be replaced on an interim basis by Rick Anderson, who is currently a non-executive director of the company.

Convatec is clearly in an uncertain period at the present time. Volatility could continue and investor sentiment may remain weak in the near term. However, with what seems to be a sound overall business, its prospects for a long-term recovery seem to be bright.

Recovery prospects

As mentioned, the Centrica share price has endured a challenging period in recent years. The company has experienced a mix of internal and external challenges that have combined to produce a disappointing performance for its investors. For example, it has suffered from a weak outlook for the oil and gas industry in recent years, while its decision to pivot towards domestic energy supply has caused investors to become concerned about regulatory and political risk to a greater extent.

Looking ahead, the company’s shares could become more popular if the world economy experiences a difficult period. They may provide a degree of defensive appeal for investors who are looking for companies which have lower correlation to the performance of the wider economy. Its dividend yield currently stands at 8%, and while it is covered just 1.1 times by profit, the company’s declining bottom line of recent years is due to come to an end in the current year.

Clearly, Centrica’s share price decline could continue in the near term. However, with what seems to be a sound strategy to improve its efficiency, the company could prove to be a sound turnaround opportunity over the coming years.

The post Centrica and Convatec share prices slump 25%+, but could they offer recovery potential? appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens owns shares of Centrica. 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.

However, a few shrewd analysts began to question the underlying performance behind outsourcers’ multiple acquisitions, the way they booked revenues and the high debt and lack of tangible asset backing. They were right to do so, because these chickens came home to roost, most notably with the collapse of Carillion.

Huge turnaround potential

Back in January, I wrote that I’d sell Carillion at almost any price but I rated Capita a ‘buy’, albeit one with elevated risk. My optimism proved misplaced. The shares were trading at 410p at the time but are changing hands at around 160p, as I’m writing.

The fall of Capita from its high of over 1,300p has been spectacular, taking it down the FTSE 100 and into the second-tier FTSE 250. There are probably private investors who will never go near the stock again and with big FTSE 100 tracker funds no longer holding it and it also being unappealing for equity income institutional investors (the dividend has been scrapped for the time being), this has got to be one of the most unloved companies around.

However, because of some positive developments since my January article, I continue to rate Capita a higher risk ‘buy’ but one with huge turnaround potential from the now thoroughly depressed share price. Further management changes, a balance sheet bolstered by a £700m rights issue, progress on the disposal of non-core assets and the winning of new contracts all give me cause for optimism.

I believe the Carillion disaster should lead to outsourcing contracts being awarded more on a best value basis than simply to the lowest bidder. If Capita can make any kind of decent margin on its multi-billion revenues, which I believe it will be capable of, I can see the shares rising strongly in time, as the market regains confidence in the company.

Temporary setback?

Global medical products and technologies company ConvaTec (LSE: CTEC) was London’s biggest flotation of 2016. Its 225p-a-share IPO valued it at £4.4bn and its shares were trading at over 300p the following year. However, late in the year, the shares dived when the company reported some significant operational issues. The collapse in its market cap led to it being demoted from the FTSE 100 in December.

I viewed these operational issues as temporary and felt comfortable with management’s confidence in resolving them. In an article at the time, I wrote: “Given the growth and margin progress that was being made up to this point and the fact the shares have slumped so far (near to 180p), I see merit in buying a small stake in this higher risk/reward turnaround situation, perhaps adding on an improving outlook.”

The company has indeed made progress. In a Q1 trading update last month, it said: “We have delivered a solid start to the year, underlining 2018 as a year of stabilisation.” The shares have recovered to 215p at the present time and I continue to rate the stock a ‘buy’ at this level. I believe the business has a bright future in the attractive healthcare sector.

The post Could this fallen FTSE 100 star be the turnaround buy of the decade? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

G A Chester has no position in any of the 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.

With that in mind, here are two shares which appear to lack investment appeal despite their profitable outlooks. As such, they could be worth avoiding in favour of other FTSE 250 stocks at the present time.

Solid performance

Wednesday saw global medical products and technologies company ConvaTec (LSE: CTEV) release a trading update for the first quarter of 2018. The business has performed in line with expectations during the period, with revenue rising by 3.7% on an organic basis to reach $458.2m.

This is a relatively impressive result, given that the company’s Advanced Wound Care and Ostomy Care performance was hurt by the ongoing impact of supply constraints that arose last year. In fact, the diversity of the stock’s operations helped it to offset this disappointment, with it enjoying strong demand elsewhere that has enabled it to remain on track to meet guidance for the full year.

With ConvaTec expected to report a rise in its bottom line of 9% this year and 7% next year, the company appears to be performing well. It offers a consistent growth outlook for the long term within a defensive sector. However, with it having a price-to-earnings growth (PEG) ratio of 2.5, it appears as though investors have factored-in its growth outlook. As such, there may be better options available elsewhere in the FTSE 250.

Difficult period

Also seemingly overvalued is beverages company Britvic (LSE: BVIC). Clearly, the last couple of years have been a challenging period for soft drinks companies. Tax changes and a lack of pricing improvements at times have contributed to a general slowdown across the industry. This has meant that after three years of double-digit earnings growth, the company has recorded a rise in net profit of only 6%-7% per annum in the last two years.

Looking ahead, the company’s rate of earnings growth is expected to fall further. In the current year it is forecast to fall to 1%, before picking up to 5% in the next financial year. This drop in its growth rate could cause investor sentiment to come under a degree of pressure. And with the company trading on a PEG ratio of 2.7, investors do not appear to have factored-in further difficulties over the medium term.

Of course, Britvic has a strong stable of brands and could deliver a sound recovery over the long run. For now though, its relative appeal within the FTSE 250 appears to be diminishing. As such, investors may wish to look elsewhere for growth at a reasonable price.

The post Warning: these FTSE 250 investments remain a threat to your wealth appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. 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.

The modern obsession with always being ‘beach body ready’ and living a healthy lifestyle is here to stay, and going to gym for an increasing number of people is as natural as going to work or cleaning your teeth.

This was reflected in The Gym Group’s latest set of brilliant financials in which it advised that revenues jumped by almost a quarter year-on-year during 2017, to £91.4m, while the number of members on its books grew 35.5% during the period to 607,000.

These brilliant numbers were helped by strong underlying demand as well as the fruits of the company’s fizzy expansion drive, the firm turbocharging the number of sites it operates to make the most of the strong environment for such businesses. It opened 21 sites in 2017 and acquired a further 18 from Lifestyle Fitness, and it plans to cut the ribbon on an additional 15 to 20 gyms in the current year alone.

As I said, it is difficult to see fitness-crazed Britain rowing back and gym demand slumping in the years to come. But The Gym Group has an added layer of protection as, unlike its more expensive competitors, the company’s low-cost and no-contract membership model should ensure reliable footfall even in the event of economic conditions toughening further down the line.

City analysts are predicting blistering earnings growth of 25% and 29% in 2018 and 2019 respectively, projections that produce a PEG reading bang on the bargain benchmark of 1. This suggests the business is exceptionally priced relative to its anticipated growth trajectory, and I reckon it should provide plenty of upside for long-term investors.

Medical marvel

I also reckon ConvaTec Group (LSE: CTEC) should churn out exceptional earnings expansion in the years ahead.

Like The Gym Group, the FTSE 250 firm — which provides a range of medical products from wound bandages to stoma bags — is no stranger to doling out double-digit profits growth in recent times, and it is expected to keep going with rises of 9% in 2018 and 7% next year.

It may deal on a slightly-toppy forward P/E ratio of 17.2 times, but I believe the promise of reliable earnings expansion long into the future makes ConvaTec a worthy stock for a slight premium. Indeed, the firm can look to favourable demographic trends like ageing populations, lifestyle choices and increased access to healthcare to keep its products well bought in the future years. Indeed, UBS puts organic sales growth for its underlying markets at between 4% and 6%.

The company has encountered severe manufacturing issues that has seen it fail to keep up with orders. However, this is unlikely to have a significant long-term impact on demand for its products, and measures like boosting its salesforce in the US and Europe, allied with an improvement in its market strategy, should lay the groundwork for strong revenues growth in the medium-to-long term.

The post 2 growth stocks I’d buy and hold for the next 50 years appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the 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.