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Each month, we ask freelance writers to share their best ideas on small-cap stocks that investors can buy – here’s what they’re talking about for January!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
The Main Myth
What we do: Premier Miton is a UK fund manager that provides a wide range of actively managed funds and investment trusts.
By Roland Head. The Main Myth (LSE: PMI) has had a tough year, but I think this could be the right time to buy shares in this well-respected company.
It’s normal to see fund managers’ profits fall when the market goes down. This is because the fee income is based on the value of the assets under management.
However, while Premier’s share price has fallen by almost 50% in 2022, pre-tax profit for the year to September 30 was down just 15%. That left the stock looking cheap to me, trading at 13 times forecast earnings, with a dividend yield of 8.5%.
There is a risk that the dividend could be cut if market conditions worsen next year. However, I think it is more likely that the situation will stabilize and the payment will be held.
In my view, this is a good opportunity to buy this cyclical business. I think the stock can do well from current levels.
Roland Head has no shares in Premier Miton.
Bioventix
What we do: Bioventix produces monoclonal antibodies for sale to customers for use in commercial and research applications.
According to James J. McCombie: Bioventix (LSE: BVXP) is a £192m biotech stock traded in the Alternative Investment Market (AIM). This small biotech stock is increasing sales and profits. In fact, it has been profitable for years and the bottom line is growing. It generates a lot of free cash flow and pays constant dividends.
The stock is relatively expensive compared to the industry and the broader market, trading at a P/E ratio of 23. However, for a company with increasing sales, a huge 79% operating margin, and consistent earnings power, I think the price is worth paying for the quality. business.
But new product development is a long and relatively expensive process to get approval. There is always a chance, as with all biotech and research-heavy companies, that Bioventix’s current risks will not pay off in the future.
James J. McCombie has no stock in Bioventix
On the Beach
What we do: On the Beach Group is an online retailer of beach holidays in Manchester.
By Paul Summers. As a shareholder of On the Beach (LSE: OTB), I can’t say that 2022 has been sunny and exciting. Despite this, I was beginning to think the worst was over.
Recent trade has been encouraging. Revenue for FY22 increased by 373% on the previous year and returned to pre-Covid levels. If it continues, I expect profits to recover seriously in 2023, especially since this small cap already has a 20% market share of the specialty market.
That said, nothing can be guaranteed. Clearly, the consumer slowdown could delay the continued rise in earnings and, ultimately, stock prices.
I’m worth 12 times the earnings of this account. In addition, On the Beach’s finances appear to be stable, helped by the fact that the online-only model means it can quickly and painlessly reduce marketing spend when needed.
I am thinking of increasing my position in this small stock.
Paul Summers has a stake in On the Beach.
Mulberry
What we do: Mulberry is a British fashion company known for its luxury leather goods, especially women’s handbags.
By John Choong. Luxury stocks tend to hold up well during recessions. This is due to the Veblen effect, which is a phenomenon where consumers perceive higher prices as higher value. That’s how I hope Mulberry (LSE: MUL) to benefit from this.
Its share price may be down more than 20% this year, but recent developments around its key market, China, could give the luxury brand a boost. After all, analysts at Shore Capital note that Mulberry is “well positioned to deliver an Asia-focused geographic expansion and potential product extension strategy”.
Currently trading at a favorable PEG ratio of 0.1, the luxury stock screams bargain. This is especially when I consider the stock’s potential upside. As the world’s most affluent consumers look forward to big spending in the coming months, it’s not hard to see why Barclays can be sold for 3.40 Euro. This gives me the potential to go up 36% if I want to buy shares today, and something I am considering first.
John Choong has no position in any of the stocks mentioned.
Argentex
What we do: Argentex is a financial services company that provides foreign exchange (FX) services to institutions, companies, and private individuals.
By Edward Sheldon, CFA. Argentex (LSE: AGFX) seems to have a lot of momentum right now.
In November, the company reported strong results for the six months to September 30, with profits coming in at £27.4m, up 75% year-on-year, and adjusted operating profit at £7.3m, up 55% year-on-year.
Then, in December, the company told investors that it expects revenue and earnings for 2022 to be ahead of market expectations.
I don’t think this strong momentum is factored into the stock price. Currently, the stock has a relatively low value.
In the future, revenue growth may moderate. In recent months, FX volatility has risen and companies will benefit from this.
I think the company has the potential to continue to grow at a healthy rate though. And at current prices, I see a lot of appeal in small stocks.
Edward Sheldon has no position in Argentex.
Gateley Holdings
What we do: Gateley Holdings is an AIM-listed commercial law firm with 15 offices in Britain and one in Dubai.
By Royston Wild. I think Gateley Holdings (LSE: GTLY) could be the top stock to buy in January. The company will see an 8% increase in annual revenue this fiscal year (which ends in April 2023). This makes it trade at a forward price-to-earnings (P/E) ratio of 11 times.
In addition, the company pays a tasty 5.5% dividend yield.
Gateley provides a range of legal and professional services in sectors such as banking and financial services, property, and pensions and benefits. And now the business (which has a market cap of £220m) is trading very well.
The latest financials in November showed profits up 22% in the six months to October and an 11% rise in adjusted pre-tax profits.
I expect Gateley to announce that trading remains strong when it updates the market on Wednesday, January 18. This could lead to a new rise in stock prices.
Royston Wild has no shares in Gateley Holdings.
Anpario
What we do: Anpario designs and manufactures animal feed additives specifically to improve livestock health.
By Zaven Boyrazian. Despite the growing popularity of plant-based foods, the consumption of meat and fish protein continues to rise. And this leads to a small demand for stocks Anpario (LSE: ANP).
The business is a specialist manufacturer of animal feed health additives. Farmers mix Anpario products into livestock feed to achieve superior health, toxin management, hygiene, and insect control. The result is a better quality of life for animals, reduced medical costs for farmers, and better protein for consumers.
The business recently completed an expansion of its UK factory, drastically increasing production capacity. The timing is not perfect, as recent regulatory changes in China have banned a significant portion of competitor products, creating a window of opportunity.
The company’s dependence on one factory creates several risks. After all, a prolonged outage at the facility could result in customer orders being taken by competitors. But given the importance of the industry, this risk is worth the long-term rewards.
Zaven Boyrazian has no shares in Anpario.
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