Rising interest rates have increased discount rates for future cash flows and making some growth stocks attractive pickings, according to broker Liberum.
AEW UK, AJ Bell PLC (LSE:AJB), Ferrexpo PLC (LSE:FXPO), Tritax Big Box REIT PLC (LSE:BBOX) and Zalando all standout as cheap growth stocks and are 'Buys', it said in a note to investors today
Discount rates are up to about 8.5% in 2022, from 6.9% last year, comprising a risk-free rate of 2.4% and a 6.1% market risk premium, according to research by Pablo Fernandez.
The discount rate used by investors in the UK market is now even higher than it was in 2019 and the biggest seen in a decade.
Liberum said this allows cheap growth stocks to be identified by comparing valuations of quickly growing companies with performance in 2019.
Companies that have above-average earnings growth but large discounts in their valuations compared with 2019 are deemed "cheap growth stocks" using his stock screen.
The broker said there has been a lull in investor appetite for growth stocks lately as investors flock to industrial stocks and the housing market.
A rise in the discount rate has meanwhile driven a sell-off in growth companies this year.