Long-term growth stocks have become a popular option in the constantly changing world of investing for people seeking to build wealth over time. This article examines the best UK stocks for long-term growth, highlighting a number of industries and businesses expected to soar in the upcoming years. In order to give a thorough picture, we’ve added statistical evidence to back up our choices. So let’s get going!
Why Invest in Long-Term Growth Stocks?
Long-term growth stocks offer a multitude of benefits for investors. Primarily, they present the opportunity for significant capital appreciation over an extended period, potentially resulting in a higher overall return on investment compared to short-term trading strategies or more conservative investments such as bonds. In reality, equities have outperformed other asset classes over the long term, with an annualised real return of 5.2% since 1900, according to a study by Dimson, Marsh, and Staunton (2018). Additionally, long-term growth stocks often entail lower trading costs and reduced tax implications, as investors hold onto their shares for longer durations.
Top Sectors for Long-Term Growth
When it comes to long-term growth, some industries are renowned for surpassing others. Here are three top sectors to consider:
- Technology: The technology sector is a driving force of innovation and growth. Technology businesses are leading this revolution as our world becomes more and more digital, producing goods and services that transform how people interact, live, and work. The market capitalization of the technology industry surged by 45.7% in 2020, according to the London Stock Exchange, indicating strong growth possibilities.
- Healthcare: The healthcare sector is another vital area for growth. There is a continuing need for novel treatments, drugs, and medical equipment due to the ageing population and developments in medical technology. According to a Deloitte analysis, the global healthcare market would increase at a 5.4% annual rate to reach £8.7 trillion by 2022.
- Green Energy: As the world shifts towards cleaner and more sustainable energy sources, companies in the green energy sector stand to benefit. This comprises businesses engaged in energy storage, electric vehicle manufacturing, and renewable energy production. The capacity of renewable energy is expected to increase by 50% between 2019 and 2024, according to the International Energy Agency.
Top UK Stocks for Long-Term Growth
Based on the sectors mentioned above, here are five UK stocks that offer strong potential for long-term growth, supported by statistical data:
- ASOS PLC (ASC): ASOS is a leading online fashion retailer, catering to a global audience. In 2020, the company reported revenue growth of 23.5%, reaching £3.26 billion. ASOS is in a good position to increase its market share and spur long-term growth because of its strong emphasis on technology and innovation.
- AstraZeneca PLC (AZN): AstraZeneca is a multinational pharmaceutical company that develops, manufactures, and markets prescription medicines. Revenue for the business climbed by 9% in 2020 to reach £26.6 billion. With a robust portfolio of cutting-edge medications addressing a range of medical ailments, AstraZeneca is at the forefront of medical research.
- Games Workshop Group PLC (GAW): Games Workshop is a manufacturer and retailer of tabletop games, miniatures, and related products. The company’s operating profit increased by 10% to £89.4 million for the fiscal year that ends in May 2020, while revenue increased by 5.1% to £270.9 million. The company’s loyal fan base and continuous expansion of product offerings contribute to its long-term growth potential.
- Ocado Group PLC (OCDO): Ocado is a leading online grocery retailer and technology provider for the grocery industry. The business reported a 35% growth in revenue in 2020, coming in at £2.33 billion. Ocado is well-positioned to profit from the growing demand for online shopping and grocery delivery services, which is anticipated to grow by 29.5% between 2021 and 2025, thanks to a report by GlobalData and partnerships with major supermarket chains and cutting-edge automation technology.
- Scottish Mortgage Investment Trust (SMT): This investment trust focuses on high-growth companies across various sectors, including technology, healthcare, and green energy. In the last five years, SMT has outperformed the FTSE 100 Index, generating an annualised return of 31.7%. SMT provides access to a wide range of long-term growth prospects for investors thanks to its comprehensive portfolio and solid performance history.
Factors to Consider When Choosing Long-Term Growth Stocks
When selecting stocks for long-term growth, it’s essential to consider the following factors:
- Company Fundamentals: A company’s financial health and management team are crucial for long-term success. Seek out businesses with solid financial standing, steady sales growth, and a track record of innovation.
- Industry Outlook: Choose companies operating in industries with a positive long-term outlook, driven by strong underlying growth drivers such as technological advancements, demographic trends, or regulatory changes.
- Dividend Policy: While not essential for long-term growth, companies with a history of paying dividends can provide additional income and signal financial stability.
- Risk Tolerance: Long-term growth stocks can be volatile, and it’s important to ensure your investment aligns with your risk tolerance. Diversifying your portfolio across different sectors and companies can help manage risk.
Also Read: Best IPO Stocks to Watch in 2023 – Investing in the Future
Conclusion
Investing in long-term growth stocks can be a rewarding strategy for building wealth over time. By focusing on the top sectors and companies with strong growth potential, investors can tap into the opportunities offered by innovative industries and market leaders. The inclusion of statistical data in our analysis underscores the strength of these investment opportunities. Be mindful of the variables to take into account when selecting stocks, and make sure your investment choices are in line with your own financial objectives and risk appetite.
Frequently Asked Questions
- Are long-term growth stocks guaranteed to perform well?
No, there are no guarantees in investing, and long-term growth stocks can be subject to market fluctuations and changes in industry dynamics. However, by carefully selecting stocks based on solid fundamentals and industry outlook, you can increase your chances of success.
- How often should I review my long-term growth stock investments?
It’s essential to monitor your investments regularly, but avoid making knee-jerk reactions to short-term market movements. A periodic review, such as annually or semi-annually, can help you reassess the performance and prospects of your holdings.
- Can I invest in long-term growth stocks within an ISA or pension?
Yes, you can include long-term growth stocks within an Individual Savings Account (ISA) or pension, providing a tax-efficient way to invest for the long term.
- Do long-term growth stocks always have high price-to-earnings (P/E) ratios?
Due to the market’s anticipation of future earnings growth, high-growth firms frequently have higher P/E ratios. However, a high P/E ratio does not ensure success; while assessing possible investments, investors need also take other financial indicators and qualitative considerations into account.
- What is the difference between long-term growth stocks and value stocks?
Value stocks are those that are trading at a discount to their inherent value, and long-term growth stocks are those that are anticipated to rise at a faster rate than the market. Both investment strategies have their merits, and investors can choose to blend them within a diversified portfolio to balance risk and reward.