Stock market

My top growth stocks for May are flying, but I think it’s just getting started!

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In an article published on May 2, I named Body coat (LSE: BOY) as my top growth stock pick for May.

Since then, the industrial service provider has been shooting. The share price chart shows the stock has risen by around 10% and now changes hands in the ballpark of 767p (20 May).

However, for investors working on a time horizon longer than just two or three weeks, I think the business can have a lot of upside.

Restoration and development

I expect the share price to reflect strong operational gains in the coming months and years to deliver a decent return on investment for shareholders.

One of the main reasons I’m optimistic about Bodycoat’s prospects is that I’m upbeat about the outlook for economies around the world, and the UK in particular.

Bodycote looks well positioned to benefit from a resurgent industry worldwide as economies recover. The firm provides thermal processing and heat treatment services for the energy, automotive, defense, aerospace and industrial sectors.

However, the need for recovery declines, and such a cycle is one of the long-term risks for Bodycote’s shareholders.

Going back to the chart, it’s clear that the stock has moved essentially sideways over the 10 years. This is a disappointing result for long-term investors. However, past performance is not a reliable guide to the future.

Some enterprises with cyclically sensitive operations have made impressive growth in operations over the years. One example among many is a distributor of construction services products. Ferguson.

Meanwhile, Bodycote maintains a modest net debt position on the balance sheet, suggesting the business is well funded for its next phase of growth. On top of that, the dividend record is impressive, with annual increases every year since at least 2018 – even through the pandemic.

The cash flow track record looks strong, and Citi analysts expect normalized earnings to grow by around 18% this year and 14% in 2025.

Targeting high growth sectors

Bodycote looks like a survivor and a winner as we emerge from a troubled few years for the economy. Part of the reason for the strong earnings forecast is that cost pressures for businesses are easing.

However, this is not the whole story. The directors also have a development plan and are working hard on it.

Already, more than 60% of the firm’s headline operating profit comes from the high-growth areas of specialist technologies, emerging markets and civil aerospace.

The directors believe that those sectors offer high margin growth opportunities. Looking ahead, he expects the firm’s business to flourish in these categories. “keep going” Leaving the company behind “Classic” heat treatment operation.

Meanwhile, the forward earnings multiple to 2025 is just below 14 and the expected dividend yield is around 3.4%. That seems like a fair assessment to me.

As with any business or stock investment there is no guarantee of positive results. Even so, I think the bodycoat looks like it could be put away and forgotten. Wake me up in five years and let’s see how it goes!

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