2 growth stocks that could beat the FTSE 100 again in 2018

High-tech growth stocks often grab most of the headlines. But if you dig deeper, you can find interesting growth opportunities in 'boring' defensive sectors such as food production.

The two companies I'm looking at today are both defensive stocks, but one has risen by 38% over the last year, while the other has notched up a 25% gain. That's not too shabby, given that the FTSE 100 fell by 2.5% over the same period.

Feeding the animals

AIM-listed firm Anpario (LSE: ANP) produces animal feed additives for pigs and poultry. It operates in more than 70 countries, providing products aimed at improving nutrition, health and hygiene.

Sales rose by 20% to £29.2m last year, while operating profit rose by 28% to £3.4m. The standout performer in terms of growth was the United States, which now provides 7% of sales and 10% of gross profit. Anpario's US salesforce is being expanded to take advantage of this opportunity.

One of the biggest drivers of growth was Orego-Stim, a product which is used by poultry producers to support antibiotic-free poultry production.

Given the growing problems with antibiotic resistance in humans, I think that demand for products of this kind could increase exponentially in coming years. If Anpario can gain a big market share, this could prove to be a long-term cash cow.

Growth + cash

Chairman Peter Lawrence warned today that the business does face potential headwinds as a result of the stronger pound. Raw materials prices can also affect profits.

Despite this, I was impressed by today's numbers. My calculations suggest that free cash flow last year was around £4m, exceeding the group's profits. Around £1.5m was returned to shareholders as dividends, while the remaining £2.5m was held in reserve for acquisitions or expansion.

Anpario now has net cash of £13m, which is about 13% of its market cap. Excluding this cash, the firm's valuation leaves the stock trading on a cash-adjusted 2018 forecast P/E of about 22 and a prospective yield of 1.5%. That doesn't seem excessive to me.

Food for thought

My second stock is also involved in food production, but is one step further along the chain. Cranswick (LSE: CWK) produces fresh pork and products such as sausage, bacon and cooked meats for UK supermarkets and restaurant suppliers.

These shares have tripled over the last five years, but profits have only doubled, making the stock more expensive than it was. It's probably fair to question whether it's now too late to profit from this success story.

I'd hold on

Broker forecasts for 2017/18 earnings have risen by 11% over the last year, as City analysts have upgraded their profit estimates for this year. Companies where earnings estimates are regularly upgraded are said to have strong momentum. Their shares often perform better than expected.

However, there are some signs this momentum could be slowing. The firm faces headwinds from falling pig prices and broker consensus estimates were cut this month, for the first time in at least a year.

Earnings per share are expected to rise by 17% this year, but growth is then expected to drop to 5% in 2018/19. I think growth could surpass this but the current forecast P/E of 20 seems quite full to me. I'd rate the stock as a hold at current levels and will keep watching.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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