2 growth stocks that could crush the FTSE 100 in 2018

Roland Head takes a look at two high-tech stocks that could rocket ahead of the FTSE 100 (INDEXFTSE:UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Big investment success stories can sometimes come from unlikely places. Today’s first stock is a good example. Nanoco Group (LSE: NANO) is a high-tech firm specialising in “cadmium-free quantum dots”.

I wasn’t previously familiar with quantum dots. They’re “fluorescent semiconductor nanoparticles” that are typically around 1/1000th the width of a human hair. They absorb energy from light and re-emit the colour in a different colour. They can be used in LCD displays such as computer monitors and televisions to provide vivid, bright colours.

Unfortunately many quantum dots contain cadmium, which is a heavy metal that’s apparently a proven carcinogen. Regulatory pressure to reduce the use of heavy metals in electronics is growing, so Nanoco has focused on developing cadmium-free quantum dots. I’d imagine that demand for this technology could rise rapidly, if it’s commercially successful.

Should you invest £1,000 in Nanoco Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nanoco Group Plc made the list?

See the 6 stocks

About to hit the big time?

Nanoco published its half-year results this morning. The group reported good progress on several fronts. The company now has “an increasing number of Nanoco-equipped display products moving through to commercial production with customers in Asia”.

The first commercial products using the firm’s technology are expected to reach the market in 2018, so the company could soon start to receive revenue for commercial sales. Analysts expect the group to make a loss of £6.4m on £6.1m of revenue in 2018. In 2019, Nanoco is expected to make a profit of £12.4m on £24.1m of revenue.

To bridge the gap before sales revenue is expected to start flowing, Nanoco completed an £8.6m fundraising in October. Based on the firm’s H1 cash burn of £4.5m, I believe this could be enough to see the business through to break-even.

Should you buy Nanoco?

Consensus forecasts for 2019 put the firm’s shares on a forecast P/E of 15. That seems quite modest, but it’s worth remembering that we don’t yet know how well Nanoco products will sell in the market.

This is too speculative for me, but if you’re comfortable with the risk, I’d continue to hold the shares following today’s figures.

One stock I would buy

I prefer to invest in companies that are already profitable and delivering sustainable growth. One of my favoured stocks in the tech sector is network technology testing and analytics group Spirent Communications (LSE: SPT).

The group’s recent full-year results showed that 2017 was a successful year, despite some customer delays in the US. Adjusted operating profit rose by 27% to $58.9m, while adjusted earnings were 43% higher, at 7.55 cents per share.

Adjusted operating costs were cut by $16.7m, which helped to lift operating margins to 13% and double free cash flow to $56.4m.

Looking ahead at 2018, the outlook remains strong. Consensus forecasts suggest that the group’s earnings will rise by 10% to 8.3 cents per share this year, and then by a further 20% to 10 cents in 2019.

These projections put the stock on a 2018 forecast P/E of 21. The group’s dividend policy suggests to me that a payout of about 4 cents per share is likely this year, giving the stock a forecast yield of around 2.2%.

This isn’t a cheap stock, but it’s one I’d be happy to buy for long-term growth. However, Spirent’s share price has been quite volatile over the last few years. I suspect the best trading strategy here is to buy on the dips.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head 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.

More on Investing Articles

Happy young female stock-picker in a cafe
Investing Articles

2 growth stocks I own and 2 more I’d like to buy

Some of the UK’s best growth stocks have the same business model. Using acquisitions to create scale advantages can be…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Has Diageo’s share price finally turned a corner (for the better this time)?

Diageo’s share price has suffered since 2022 from changing consumer habits and cost-of-living increases. But is this now in the…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Here’s how investors can target a £15,882 yearly passive income from just £5 a day invested in this top FTSE dividend star!

Small but regular investments in this leading FTSE 100 financial stock can generate potentially life-changing passive dividend income over time!

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

A P/E ratio of 127! Is this soaring FTSE 250 stock as overvalued as it looks?

Up 66% over the past year, FTSE 250 company Avon Technologies has a heavily inflated P/E ratio. But Mark Hartley…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

My SIPP portfolio is on fire so far in 2025! Should I be worried?

Find out which top growth stocks have been powering our writer's DIY pension portfolio -- his SIPP -- and why…

Read more »

Closeup of "interest rates" text in a newspaper
Investing Articles

2 dividend-paying UK shares that could thrive in a high-interest-rate world

Higher interest rates are usually bad news for businesses, but some UK shares could potentially benefit from tighter monetary policy.

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

This FTSE 250 investment trust has just smashed the S&P 500!

Ben McPoland highlights a FTSE 250 trust that has been easily outperforming its benchmark lately, with a helping hand from…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

How much do you need in a Stocks and Shares ISA to target a £3,000 monthly passive income?

Want to build up long-term passive income from investing in the UK stock market? The magic of compound returns can…

Read more »