Over the course of the last year, the performance of the FTSE 100 has been somewhat disappointing. After all, it has fallen by 1% despite there being a number of positive catalysts that could have pushed it higher, notably political stability in the UK, an improving UK and Eurozone economy, as well as a reduced prospect of an interest rate rise as a result of deflation.
Growth Stocks
Of course, not all stocks have posted such disappointing performance. And, while stocks paying high dividends have gained in popularity as investors realise that interest rates are not heading northwards at a very fast pace, growth stocks have seen investor sentiment pick up strongly. This, though, is not a major surprise, since above all else the market tends to favour companies that can increase their bottom lines at a rapid rate, and is willing to rerate them upwards to very, very high valuation levels.
Diversity
While a number of sectors are experiencing challenging periods, there are always exceptions to the norm. For example, the pressure on the pharmaceutical sector is relatively high at the present time due to the challenges of replacing blockbuster drugs after they have gone off-patent. Similarly, the banking sector is the subject of countless fines that are reducing profitability at a number of our major banks, while the technology sector is still rumoured to be a bubble – especially when it comes to social media.
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Opportunities
However, within each of these three sectors there are clear growth opportunities. For example, within the pharmaceutical sector is BTG (LSE: BTG). It is expected to grow its earnings by 27% this year, followed by growth of 47% next year. That’s considerably higher than both the wider index’s growth rate and is also among the upper end of incumbent pharmaceutical sector growth rates, too. And, despite this, BTG trades on a price to earnings growth (PEG) ratio of just 0.5 even though its shares are up by 10% in the last year.
Also performing well over the last year has been Virgin Money (LSE: VM). Its shares have risen by 56% even though many of its banking sector peers have seen investor sentiment waver somewhat. A clear reason for Virgin Money’s rising share price is its bright future prospects, with it gradually gaining a foothold in the UK lending market and offering 50%+ earnings growth next year. And, with a PEG ratio of 0.2, more share price gains are very much on the cards.
Of course, when it comes to technology, it is rare to find a cheap stock. However, ARM (LSE: ARM) (NASDAQ: ARMH.US) offers great value and relative consistency, with its shares also having risen by 21% in the last year. For example, it is expected to continue the run that has seen its bottom line grow in four of the last five years, with a rise in earnings of 74% expected this year. And, with a PEG ratio of 1.5, ARM still offers capital gain potential, and appears to be worth buying right now.
