2 growth stocks that could put the State Pension’s returns to shame

With the State Pension being around £8,500 per year, it’s considerably lower than the UK average salary of £28,000 per year. Although retirees may not require the same level of income as they did during their working lives, the current State Pension seems to be inadequate in many cases.

With that in mind, generating a sizeable nest egg by the time of retirement could be a shrewd move. Here are two shares which seem to offer growth at a reasonable price and could deliver high total returns in the long run.

Improving outlook

Reporting interim results on Wednesday was construction materials group Breedon(LSE: BREE). The company’s revenue increased 16% to £378.4m, while its underlying pretax profit was up by 15% to £37.4m. The company demonstrated resilience in what was a tough period for the industry. It was able to continue to invest in its operations, while also making four acquisitions.

Rising input costs and poor weather held back its performance to some degree. But the performance of the company’s Irish businesses helped to offset this to some extent. As a result, the stock is expecting to deliver results for the full year are in line with previous guidance.

With Breedon trading on a price-to-earnings growth (PEG) ratio of 1, it seems to offer good value for money. Its profit growth forecasts over the medium term remain encouraging – especially given the weakness that’s due to remain in place in the UK economy. However, with a positive long-term outlook for the UK and Irish construction sectors, the total returns on offer from the stock could be high.

Changing business

Also offering long-term growth potential is British American Tobacco(LSE: BATS). The company is experiencing a transitional period at the present time, with cigarette volumes falling and smokers gradually moving towards next generation products such as e-cigarettes. This trend is set to remain as new reduced-risk products are released. And with the company having a strong foothold in this space, it could be a major beneficiary of changes in consumer tastes over the coming years.

Price rises, though, are helping to offset cigarette volume declines in the near term. In the next financial year, British American Tobacco is forecast to post a rise in earnings of around 9%. This suggests that its strategy is working well, and that the decision to acquire the remainder of Reynolds could be a sound move.

With the stock having a PEG ratio of 1.4, it seems to offer a wide margin of safety. Alongside this, it has a dividend yield of 5.2% from a payout that is covered 1.5 times by profit. This suggests that it could offer a mix of growth, value and income potential that helps it offer a realistic alternative to the State Pension over the long run.

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Peter Stephens owns shares of British American Tobacco. 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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