Forget Bitcoin! I believe this FTSE 100 growth stock could help you retire wealthy
The Bitcoin price has fallen by nearly 40% since peaking at more than £10,000 in July. What will happen next? To be honest, I’ve no idea. Although I admire the blockchain technology which lies behind this cryptocurrency, I don’t see a long-term future for Bitcoin itself.
These crypto-coins aren’t easily used for payment and aren’t recognised as a currency anywhere in the world. Bitcoin doesn’t have any asset backing, either. So its value is completely speculative and based solely on the balance of supply and demand.
It all seems very risky to me. Call me old fashioned, but I prefer to invest my cash into real businesses that generate cash profits and growth. So here I’m going to highlight two growth stocks I’d be happy to buy and hold until I retire.
A FTSE 100 newcomer
Hikma Pharmaceuticals (LSE: HIK) hasn’t been in the FTSE 100 for very long. But this £4.8bn company has a track record of growth. This suggests to me its place in the big-cap index should be quite safe.
The group specialises in producing generic versions of popular medicines and also sells its own range of branded products. Hikma’s two main markets are the United States and the Middle East & North Africa.
Growth has been strong in recent years — sales have risen from $1,365m to $2,130m since 2013. The shareholder dividend has doubled over the same period, but borrowing levels have remained very low, unlike at some larger pharma groups.
Analysts expect earnings to grow by about 5% in 2020, which seems modest. But I believe Hikma’s 20% operating margin and strong cash generation have the potential to support market-beating growth in the years ahead.
The market shares my view, pricing Hikma stock on 17 times 2020 forecast earnings, with a forecast dividend yield of 1.7%. In my view, buying the shares today should deliver a mix of growth and future income. For investors saving for retirement, I think this could be a good choice.
A future FTSE 100 stock?
With a market-cap of just £1.9bn, FTSE 250 IT services group Softcat (LSE: SCT) has a little way to go before it can be considered for the FTSE 100. But shares in this business have doubled over the last two years and risen by 250% since its flotation in late 2015.
By any measure, the company has been one of the most successful new listings of the last five years. It’s not hard to see why.
Figures released today show revenue rose by 24% to £991.8m during the 12 months to 31 July. Operating profit also rose by 24%, to £84.5m. This shows profit margins are remaining firm despite continued growth — an impressive achievement.
Softcat’s business model as an equipment reseller and service provider doesn’t require much in the way of facilities or capital expenditure. As a result, it’s highly profitable. My sums indicate the group generated a return on capital employed of 73% last year. That means an operating profit of £73 for each £100 invested in the business.
This strong performance has left the shares trading on a demanding 26 times 2020 forecast earnings. This isn’t cheap, and a recession could see orders slow and profits tumble. I’d probably wait for the next market correction to buy more Softcat shares, but I’d be happy to continue holding following today’s results.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals and Softcat. 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.
Motley Fool UK 2019