Reasonably priced growth shares for 2024

The FTSE All-share index is up by more than three per cent since the beginning of December but Santa gifted most of his late 2023 rally to the spoiled US equities market: the S&P 500 index rising almost 4.4 per cent over the same period. This is hardly a fair comparison in terms of companies’ size, and there are issues related to interest rate expectations and their knock-on effects for currencies, but looking at the  largest UK companies the difference is more stark: the FTSE 100 is up by not quite two-and-a-half per cent in the past month. 

So, does that mean that we’re ready to trot out the tiring narrative around the decline of UK plc and the dearth of growth stories accessible to investors on the London market? In fairness it’s not entirely a hollow argument, but there is also a case to be made that UK shares offer good value. Our growth at a reasonable price (GARP) screen looks to strike a balance between growth prospects and valuation, so offers a decent lens for weighing up the attractiveness of shares on both sides of the Atlantic. 

Interestingly, after the S&P 500 finished 2023 strongly, there are now fewer of its constituents scoring well on our screen. What’s notable, however, is that the US screen is still topped by Nvidia (US:NVDA) and the AI chip-maker passes all our tests. Based on a composite of share price momentum and blended price-to-earnings-growth (PEG) ratio, it also ranks 56th out of index constituents. More importantly, the long-term growth case still looks compelling as Phil Oakley discussed in his in-depth report before Christmas. 

Other US companies that look interesting include retailer Target (US:TGT), although the outlook for earnings growth further out than the current year softens and its prospects will be affected by how softly the US economy can continue to land. Automatic Data Processing (US:ADP) is a Human Resources Software-as-a-Service (SaaS) business expected to deliver solid earnings growth over its current and next financial years but on a valuation basis is right on the edge of our screen thresholds. 

Switching attention to larger UK companies and the issue is the consensus view on growth prospects rather than expensiveness. Some caveats must be made about the companies that do score well. In the case of hospitality business Whitbread (WTB) cyclical economic factors must be considered. The same is true of Primark owner Associated British Foods (ABF) which we also looked at in depth at the end of last year. When it comes to Imperial Brands (IMB), the tobacco company is hardly a secular growth play but owes its ranking to its cheapness and because its historically high dividend yield helps it look attractive on our blended PEG measure. 

In the UK mid-cap space, Games Workshop (GAW) still ranks well, although its latest trading update “in line with expectations” didn’t chime with the market given investors got used to it beating expectations during heady days for the shares in 2021. A December announcement of a content agreement with Amazon may prove fruitful in the long-run, but the shares don’t seem cheap relative to investors’ more sober expectations these days.