The cataclysm that hit markets in the first month of the year has shown signs of abating, with volatility easing and sentiment improving.
Instead of market turmoil, this period of the year is unusually when investor activity reaches a peak as people rush to make use of their Individual Savings Accounts [ISA] allowance before the April deadline but many may still be wary to allocate to non-cash assets.
In this article Graham Spooner, investment research analyst at The Share Centre, tips four stocks from the UK’s junior equity market that he thinks could soar.
While very small cap companies can be highly volatile they can make enormous gains and the ISA wrapper can be a way to buy and hold for the long term while mitigating capital gains tax.
Finsbury Food
First up we have food producer Finsbury Food which makes a range of baked goods for supermarkets, wholesalers, caterers and restaurants.
“This diversity reduces the risk level and gives the company exposure to potential growth in a number of key areas,” Spooner said.
“The group’s strong performance of late has been mainly credited to its acquisition of bakery group Fletchers, which came through earlier than expected. Investors should also note that the prospective dividend yield of 2.5 per cent is good for the sector and is well covered.”
The stock has returned 74.62 per cent over the past year and Spooner says its recent acquisitions could see it perform strongly again, but adds it is for investors who are willing to accept a higher level of risk and are seeking growth.
Performance of stock over 1yr
Source: FE Analytics
“Current trading is solid with good growth patterns continuing into the new financial year, particularly so in terms of organic sales. The café and convenience food service sectors have been growing steadily in recent years and Finsbury Food is a beneficiary of this growth,” he added.
Hayward Tyler
Next, we have this historic engineering group which has diverse range of products from underwater motors to pumping equipment.
“It is one of the world's leading suppliers of specialist electric motors and pumps, with a growing reputation for providing mission critical products and services,” Spooner said.
“The company’s products are often large and take a long time to build. A further attraction is a need for after sales maintenance and repair.”
“Management's focus is on cash generation to help fund growth, improve communications between customers and suppliers and manage long term growth allied to short term output.”
The stock has been volatile as the graph below shows and Spooner points to the firm’s expansion plans as being heavily geared to markets being resilient.
Performance of stock over 3yrs
Source: FE Analytics
“Investors should note that its CEO is confident in the ability to win more contracts and most importantly, grow the business. This is a higher risk AIM-listed company that is establishing a niche for itself across the globe,” Spooner added.
Breedon Aggregates
Again, Spooner says acquisitions and a pick up in the economy could benefit this stock which has soared over the past four years or so.
Performance of stock over 5yrs
Source: FE Analytics
He thinks, as a provider of concrete and other infrastructure-related aggregates, it will be a huge beneficiary of a pickup in national spending on such projects in 2016.
“Breedon Aggregates provide various aggregates to the construction and building industry and would therefore be a direct beneficiary of increased infrastructure spending, which the group is expecting to grow strongly through to 2018,” he said.
“It has been positioning itself to benefit from such a pick-up in the economy, which has led to a number of acquisitions.”
“These acquisitions should help expand its geographical presence in the UK and management expect a significant and improving contribution to come from the acquisitions.”
OPG Power Ventures
Last up is this is this firm which runs medium sized coal-fired power plants in India, a country where many economists have revised their economic growth projections for since the election of Narendra Modi in March 2014.
“We believe it is an interesting stock choice for investors seeking growth within their portfolio. With the country’s demand for power in excess of supply, the group’s management are confident that its expanding operations will benefit from this and lead to further growth opportunities.”
“OPG brought a number of new plants on stream in 2015, and the company has a good record for hitting its schedule. It is also looking to develop wind and solar powered plants in the future.”
The stock, like many in the energy space, has taken a tumble of late and it is sitting on a 30 per cent loss since November which Spooner says provides an ideal buying opportunity.
Performance of stock over 1yr
Source: FE Analytics