LONDON -- If you're looking to tuck some money away for a few years, then it can make sense to invest in growth stocks -- companies whose earnings should rise faster than average.
It's important to identify where the growth will come from. For example, a company could:
- be in a new or expanding market, such an ARM
- be entering foreign markets, such as Unilever
- be growing market share, such as Associated British Foods' Primark fashion chain
- be in a cyclical industry on the upturn, such as house building
- be a turnaround or recovery story, such as AstraZeneca or BP
First, Barclays is a turnaround story. The strategy review from new boss Antony Jenkins was something of a damp squib; nothing like the scythe that John McFarlane took to Aviva. Mr Jenkins' intention seems to have been more to restore Barclays' tattered reputation.
But the transformation story has much further to run. Sky News reported that Mr. Jenkins told investors he envisaged a bank with 100,000 employees rather than its current 140,000.
Out of the doldrums
Secondly, banking is in the doldrums. Partly that's the poor state of the economy, and partly it's because bankers loaded their balance sheets with dodgy assets. However, those issues should gradually improve.
Barclays currently trades at 0.6 times its book value. A well-run bank in a decent economy should be valued at double that multiple.
To boldly go
Thirdly, Mr Jenkins has identified where he is going to invest: geographically in the U.K., U.S., and Africa; segmentally in U.K. mortgages, Barclaycard, and wealth management. In the long term, those businesses, especially within Africa, should power Barclays' growth.
These are three reasons why Barclays has great upside potential. But beware -- with the massive overhang of debt in developed economies and the eurozone primed to blow up over the smallest spark, it could be a bumpy ride.
Whether or not you fancy Barclays, it's worth thinking about investing in an ISA before the deadline of 5 April. With shares sheltered within ISAs, you don't pay any capital gains tax, and the dividends aren't liable to additional income tax. You also don't declare ISAs on your tax form, either, saving you paperwork. There's more information about ISAs here.
For an opportunity with a lower-risk profile than Barclays, I recommend you read about this company. It has survived bigger changes in its industry than the banks have undergone, yet it hasn't made a capital call on its shareholders in more than 70 years. It has increased or held its dividend every year since 1988, too.
Earnings per share have gone up by 44% since 2009, and there could be considerable value that isn't reflected in the share price. That's why it's the Motley Fool's Top Growth Stock for 2013.
You can learn more by downloading this free report by clicking here.