Stock market

2 Top Growth Stocks to Consider Buying in June

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Investing in growth stocks requires patience. But for those willing to wait, it can be a great way to build wealth over time.

The key is to find companies that will be able to consistently grow their earnings over the long term. And there are a couple that I think look like good candidates right now.

Growth prospects

Acquiring other businesses can be a great source of growth. It can be risky if done badly, but it can be a great way to increase revenue for a skilled management team.

There is a great example. Berkshire Hathaway. Warren Buffett’s acquisition skills have transformed a struggling textile mill into a highly successful conglomerate with a diverse set of operations.

As Buffett notes, Berkshire’s size now makes rapid growth a challenge. Acquisition opportunities to differentiate the $885bn business are limited.

Berkshire isn’t the only company capable of doing well, though. There are other firms with similar structures that do not have the same size constraints.

Banzel

FTSE 100 Stock Banzel (LSE:BNZL) is a perfect example of this type of operation. The company is a collection of approximately 150 subsidiaries that distribute hygiene, packaging and safety products.

A combination of acquisitions and organic growth has seen earnings per share grow by an average of 10% per year over the past decade. And more to come.

Management has indicated that the pipeline for acquisitions appears strong. And with a £10bn market cap, it should be a long time until the company’s size becomes any sort of barrier to its growth.

The stock trades on a price-to-earnings ratio (P/E) of 19, higher than the FTSE 100 average of 13. This is a risk for investors, but the company has some exceptionally good qualities.

Bunzl combines the speed and reliability of a global firm with the agility and responsiveness of a local business. It’s a powerful combination that I hope will see strong growth for a long time to come.

Dover

Dover Corporation (NYSE:DOV) is another interesting growth stock – if I had bought it five years ago, I would have doubled my money by now. I think it’s worth paying attention to.

The firm is a conglomerate of approximately 50 businesses focused on industrial equipment, components and support services. Its subsidiaries dominate their respective industries, making it difficult to disrupt them.

Dover is more than twice the size of Bunzel, which increases the company’s risk of slowing growth. And earnings per share have grown only 6% annually over the past 10 years.

It is worth noting that the stock trades at a low P/E ratio of 17.

Wealth building

At today’s prices, neither the Banzel nor the Dover look like an obvious bargain. But the point of a growth stock isn’t what the company makes now, it’s what it’s going to make in the future.

In my view, both Bunzl and Dover are incredibly strong businesses that have the opportunity to grow their earnings significantly over time. And when they do, I think today’s prices will look like fantastic value.


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