2 mid-cap growth stocks with millionaire-maker potential

Trying to find defensive growth stocks is a difficult, but not impossible task. For example, in the healthcare sector, there are plenty of opportunities for investors. One example is Spire(LSE: SPI).

An opportunity to buy?

Shares in Spire are falling today after it was revealed that the company is no longer in merger talks with larger peer Mediclinic International. Even though Mediclinic was interested in its smaller peer, it seems that the two parties couldn't agree on a price, which resulted in merger talks breaking down.

Commenting on the breakdown, Spire Chairman Garry Watts said: "The board carefully considered Mediclinic's approach but determined that it did not reflect the true value of the company and was not in the best interests of shareholders as a whole."

I believe that this is an excellent opportunity for investors. Spire is the most significant leading independent hospital group in the UK with 39 private hospitals, 10 clinics and two Specialist Cancer Care Centres.

Over the past few years, management has capitalised on its unique position in the market by expanding its offering into new regions and acquiring smaller peers. Several new premises are being opened this year. Initially these will hold back earnings growth, but City analysts expect the company's spending to begin to pay off in 2018. After falling by 22% in 2017, analysts are predicting 5% earnings per share growth for 2018.

Even though this near-term outlook might not look attractive, I believe that over the long term, Spire will become a millionaire-maker stock. The firm is well positioned to grow in the UK market and management has a record of profitable growth. That being said, there are some concerns about the firm's exposure to the NHS.

Meanwhile, the shares trade at a forward P/E of only 18, below the Healthcare Providers & Services Industry sector average of 23. There's a dividend yield of only 1.3% on offer but the payout is covered four times by earnings per share, leaving plenty of room for further rises.

As Spire returns to growth, I believe the shares should re-rate and when management decides to slow the company's expansion plan, shareholder returns should quickly materialise.

Emerging market growth

Spire has many attractive qualities, but for those investors who are willing to take more risk by investing overseas, Georgia Healthcare(LSE: GHG) might be a better buy.

Listed in London, it offers exposure to the fast-growing economy of Georgia via the healthcare sector. The business is one of the largest in the industry and its size (as well as vertical integration) is helping to accelerate growth.

For the first nine months of the year, it reported a 44% increase in EBITDA and a 26% increase in profit before tax. For the full year, City analysts have pencilled in a 22% decline in earnings per share, thanks to the ramp-up in spending on capital projects.

However for 2018, growth is expected to return with a vengeance. Earnings per share are projected to rise 91% year-on-year to 17.9p giving a forward P/E of 21. Compared to Spire, this valuation might look expensive, but when you factor-in growth, the shares are trading at a PEG ratio of 0.2, which is exceptionally cheap.

Better income picks

Georgia and Spire are great defensive growth plays but the one thing both stocks currently lack is an attractive dividend yield.

Indeed, income stocks should always form a significant component of your portfolio as research has shown that over the long term, dividends can account for 50% of investment gains.

To help you uncover the best income plays, I highly recommend that you take a look at this free report which looks at all the benefits income stocks can bring to your portfolio.

The report is entirely free and available for download today.

Rupert Hargreaves has no position in any share 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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