There are quite a few dangers and risks when it comes to investing. Sometimes something bad happens to a company which is a big negative to a company's earnings.
One example of this would be the Crown Resorts Ltd (ASX: CWN) arrests in China where Crown employees had been allegedly advertising gambling to Chinese nationals, this could result in a big hit to VIP gaming profits and therefore Crown's net profit. Another example is the Bellamy's Australia Ltd (ASX: BAL) mess that will also have a big negative hit to profits.
However, there is another danger that growth stocks have simply been trading on an earnings multiple that was too high even though it's still expected to make a bigger profit than last year, this results in the stock trading lower. Examples like Brambles Limited (ASX: BXB), TPG Telecom Ltd (ASX: TPM) and Vocus Communications Ltd (ASX: VOC) spring to mind.
The way to protect your portfolio against this risk is to buy growing businesses at reasonable levels, so here are two that I think would make safe growth options:
Capilano Honey Ltd (ASX: CZZ)
Capilano is the 100% Australian honey producer and it has a market capitalisation of $152 million.
There is a rising tide of resentment against sugar being added to a lot of food and drink products and some of the population are now avoiding that type of food.
But there will always be demand for sweet foods, so honey could be the replacement for pure sugar for some people. This could be one of the main reasons Capilano grew revenue by 11%, net profit after tax by 21% and the dividend by 6.66% in FY16.
Another contributor to those impressive figures was the growth of export sales, such as the 59.6% growth of sales to China, I expect it may see more big growth figures to Asia in the years to come.
As Coca-Cola Amatil Ltd (ASX: CCL) has shown, the best way to grow may be to simply sell an increasing number of different products. Capilano is launching a product called "Beeotic Prebiotic Honey" to help with digestive health, playing on honey's supposed medicinal benefits.
It's trading at 14.5x FY16's earnings with a grossed up dividend yield of 3.59%. This is quite cheap for a stock that has grown by 113% over the last 24 months.
Select Harvests Limited (ASX: SHV)
Select Harvests is one of Australia's largest almond producers with a market capitalisation of $422 million.
Nuts, particularly almonds, are becoming increasingly popular with changing Australian (and global) food diets. With almonds providing one of the cheapest sources of protein compared to most meat and fish. There are also more products like almond milk which is driving demand for almonds too.
Select Harvests is another company that's planning for more overseas exports and is diversifying its product mix, with its Lucky brand that sells nuts incorporated with other nut items.
It's trading at 17.3x FY17's estimated earnings with a grossed up dividend yield of 11.03%.
Foolish takeaway
I think both of these companies would make decent additions to any Foolish portfolio, although Capilano would be my favourite at the current prices. For another cheap growth stock with overseas expansion plans and a big dividend, you should read this report.
