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Investing in growth shares can deliver stunning returns over the long term. If earnings rise as analysts expect, share owners can enjoy price gains that smash the industry average.
Buying them cheaply can leave scope for even higher returns too. The theory is that there’s potential for the market to recognise this value over time, and in the process push their prices still higher.
There’s another advantage to buying growth stocks on the cheap. These shares can be more susceptible to price volatility. Companies that trade below value however, come with a “margin of safety” that can protect against any sharp price reversals.
With this in mind, here are two of my favourite, low-cost FTSE 100 shares this month. I believe they’re worth further research right now.
Standard Chartered
Investing in emerging market stocks such as Standard Chartered (LSE:STAN) can be uncomfortable at times. Political and economic instability can damage its profits growth, as can sharp exchange rate movements.
Yet the benefits of investing can still outweigh these potential risks. For instance, I think investors should consider buying its shares, despite current problems in China.
Firstly, it’s my opinion that China’s troubles are baked into the bank’s low valuation. It trades on a forward price-to-earnings (P/E) ratio of 7.1 times. On top of this, its corresponding price-to-earnings growth (PEG) multiple is 0.1. A reading below 1 indicates a share’s undervalued.
Secondly, I think the bank’s long-term investment case remains in tact. Demand for banking products in its Asian and African markets is tipped for sustained expansion over the next decade. This is likely to be driven by rising personal wealth levels and rapid population growth.
In the meantime, City analysts think StanChart’s earnings will rise 86% year on year in 2024. A 12% rise is forecast for next year as well.
Sage Group
On paper, Sage Group (LSE:SGE) doesn’t look cheap. Its forward P/E ratio’s 27.1 times, a high rating that could see its shares slump if market sentiment slumps.
This could happen if the chances of a US recession increase.
Having said that, I think the software giant’s worth a close look following recent price weakness. Its shares are down by almost a fifth in the past six months.
Sage has considerable growth potential, in my book. Its cloud-based accounting products are growing in popularity as firms change their business practices. Sales are also benefitting amid a broader digitalisation in the ways companies do business.
I also like the huge strides Sage has made in artificial intelligence (AI) since it launched its Pegg chatbot in 2016. Chief executive Steve Hare claims that AI will “change the nature” of accounting, and is ramping up product launches in this area.
City analysts think Sage’s annual earnings will rise 13% this financial year (to September 2025), and again next year. I think it looks more attractive value-wise than many other US tech stocks, and especially those with AI exposure.
Nvidia and Microsoft, for instance, trade on forward P/E ratios of 47.6 times and 31.6 times, respectively.
