2 growth stocks that should beat the market over the next 10 years

There has been a retreat for safety lately, pushing up the valuations of some growth stocks.

I see it as a buying opportunity for my portfolio. Here are two stocks that I think look good to outperform the market over the coming decade, thanks to a combination of strong growth potential and attractive valuations.

S4 Capital

One of the stocks I’ve been most interested in over the past few years is a network of digital media ad agencies S4 Capital (LSE: SFOR).

S4 has certainly produced dramatic stock price gains for some time. But like the Grand Old Duke of York, he went up the hill only to walk back down again. Last year’s delay in publishing the final results caused the stock to fall and since then it has struggled to gain ground.

This is not only frustrating for shareholders, but also a threat to the company’s growth. The growth was aided by acquisitions that were partly financed with shares. Management plans to wait until stock prices return to levels prior to last year’s debacle before using stocks as currency for new acquisitions again.

Despite the collapse of the share price – 64% in the last year alone – I think the business prospects of S4 Capital remain strong.

The one-year results will be out by the end of this month. The company has said that annual net revenue growth looks like it should be around 25%. That’s impressive.

I think there are still a lot of people who don’t appreciate the appeal of the S4 business model. The focus on technology means there is a risk of a slowdown in big digital brands. On the other hand, such a slowdown can cause clients to focus on efficiency, which can help push more businesses in the direction of S4.

S4 has a strong collection of assets in the digital space. I think it can continue to grow strongly in the coming years even if the economy weakens. The current market capitalization of under £1bn does not fully reflect this.

This month I have used the weakness in the stock price to increase my existing position.

JD Sports

If I have spare cash to invest now, I use it in February / March JD Sports (LSE: JD) price to add more of this growth stock to my portfolio.

Shares have moved up 9% over the past year but I think they still represent good value. The company has a market capitalization of £8.4bn. That looks undemanding for a business that hopes to top £1bn in headline profits before tax and exceptional items this year.

I think it can only get better from here. JD has a long history of strong growth and has unveiled a strategy to continue delivering increases in profits and hopefully profits. This includes ambitious plans to open hundreds of new stores each year, alongside the company’s sizable digital operations.

Inflation is a risk to profit margins. Expansion programs can burden companies with expensive real estate obligations when economic conditions mean consumers have less money to spend.

But I like JD’s proven but simple retail formula, its continued ambition and global reach. I think the stock looks undervalued relative to its long-term potential.