I’m always wary of buying FTSE 100 growth stocks after they’ve been on a long run, in case I’m joining the fun too late. I’ve missed out on a heap of top momentum stocks as a result.
A good example is high street clothing and homewares retailer Next (LSE: NXT). While bricks and mortar retail rivals fail and die, it powers relentlessly on.
The Next share price is the best performer on the FTSE 100 over the last month, up 14.67%. Over 12 months, it’s up a whopping 49.04% (and 76.02% over two years!) It’s swung through the cost-of-living crisis in style.
There’s a lot more to Next than shoppers see when they enter its stores, or check out its webstore. The board has taken advantage of retail disarray to snap up Joules and MADE, and built large equity stakes in JoJo Maman Bébé, Reiss and FatFace.
A FTSE 100 star
The group’s Total Platform venture has opened up a new line of revenues, providing marketing, warehousing and distribution services to third-party businesses.
Its most recent full-year results, published on 20 March, beat expectations with sales rising 5.9% to £5.8bn, driven by a 5% jump in online sales to £3.2bn. It’s made a great start to the new financial year, too, lifting full-year profit guidance by £20m to £980m. That’s up 6.7% on last year. Real wage growth and falling prices are driving momentum.
Despite smashing the FTSE 100, its trailing price-to-earnings ratio of 15.27 is in line with the index average. The 1.39% dividend yield is well below the 3.7% average. But its soaring shares are mostly to blame.
The IAG share price is also flying
One risk is that wage growth is likely to slow from today’s inflation-beating levels, hitting sales. Clothing retailers are at the mercy of the weather, as a mild autumn or wet spring could hit seasonal sales. I’m obviously arriving at the party very late now, but can’t keep using that as an excuse. I’ll buy Next shares as soon as I have some cash.
British Airways owner IAG (LSE: IAG) is another stock that has sat on my watchlist for several years. Now I think I’ve waited long enough. Like Next, the IAG share price has had a pretty solid month, rising 8.91%. Over one year, it’s up 15.04%.
The airline sector is notoriously volatile. There’s no hiding place when war, industrial action, recession, volcanoes or pandemics strike. Worst, airlines have high fixed costs, so the bills keep rolling in regardless.
This partly explains why IAG shares are trading at an ultra-low valuation of 4.27 times earnings, despite their recent solid run. The fact that it was still nursing net debt of €9.25bn at the end of 2023 didn’t help. That’s mostly a legacy of Covid.
Like next, IAG should benefit from a consumer recovery, should we get one. A recession will inevitably hurt, but if I hang around I run the risk of the shares flying even higher. I’ll buy this one when I have the cash too.
