What’s behind this rise. And, importantly, can it continue?

Why the ABDX share price is flying

York-based Abingdon Health describes itself as a “world-leading developer and manufacturer of high-quality rapid lateral flows tests“. The reason why its share price has been soaring in recent days is down to the launch of the BioSURE Covid-19 IgG Antibody Self Test. BioSURE — Abingdon’s partner — already produces rapid tests for HIV. 

This test itself uses a minute amount of blood from a finger and gives results in around 20 minutes. Essentially, it allows people to monitor their own antibody status in the comfort of their home either before getting jabbed, after getting jabbed or post-infection. Based on the thickness of the line on the testing strip, people can quickly understand whether they are protected against Covid-19 or not. 

Such a test is patently useful as economies around the world continue to recover from multiple lockdowns and lost activity. So, could this just be the start of a sustained rise in the ABDX share price?

Revenue could soar

There are certainly reasons to be bullish on the outlook. Production of the test is now in full flow at the company’s facilities in York and Doncaster. Importantly, Abingdon is also the exclusive worldwide manufacturer of the test.

There are other positives. I’m not an expert on pricing. However, £32.95 (the cost of the test) doesn’t seem excessive. Moreover, it’s likely that demand for Abingdon’s test will exist for some time as more governments shift to the idea we all need to manage rather than defeat Covid-19. It may become especially useful if booster vaccinations are deemed necessary.

Another thing worth knowing is that the BioSURE Covid-19 IgG Antibody Self Test is just one of a number of Covid-19-related products being manufactured by the firm. Assuming others make the grade, revenue growth at Abingdon could conceivably soar.  

Buyer beware

As wonderful as the performance of the ABDX share price has been, it goes without saying that there are one or two things I need to remember before investing here. 

The first is that small-cap stocks, especially those in this area, are prone to ‘pop and drop’ behaviour. A quick peek at the share price graph of diagnostic firm Novacyt bears this out.

Will Abingdon follow a similar trajectory? Well, no share price rises in a straight line. It’s inevitable some traders will want to bank profits at some point. Whether the stock continues to multi-bag before then is, naturally, very hard to say.

A related issue for investors is that Abingdon has a very small ‘free float’. Just 25% of its stock is traded on the market. That may help explain why the share has done so well recently. It only takes a few trades to really move the needle. Since the ABDX share price has the potential to also move violently downwards, I think there’s one thing I can comfortably predict: volatility. 

Overall, I rate the shares as a (very) cautious buy for my portfolio. Nevertheless, I’d only ever play with money I could afford to lose.

The post Here’s why penny stock Abingdon Health (ABDX) has rocketed 140% appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. 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.

Xpediator

First up is freight management and warehouse service provider Xpediator (LSE: XPD). The company operates across the UK and Central and Eastern Europe.

As maybe expected, the pandemic hasn’t made life easy for the business. However, since dropping to 14p last March, shares have rallied almost 250%! A quick look at its most recent update on trading shows why. 

Back in January, the small-cap reported that profits in 2020 would likely be “significantly ahead of market expectations” following “higher than anticipated demand” for the company’s diversified services at the tail end of the year. Xpediator now looks set to report adjusted pre-tax profit of £7.2m in April. That’s up 40% on what it achieved in 2019.  

Naturally, the AIM-listed company won’t be everyone’s cup of tea. Operating margins tend to be very low in this line of work. Others may be put off by the company’s steadily increasing level of debt.

Even so, I think this momentum could continue in 2021. A forecast price-to-earnings (P/E) of 10 certainly doesn’t look too dear yet.  

Lookers

Another penny stock that could prove a great buy in time is car retailer Lookers (LSE: LOOK). This is assuming consumer spending recovers strongly once lockdown restrictions are lifted.

Following a decent recovery in H2, Lookers looks set to report underlying pre-tax profit of £10m for 2020. This compares favourably to the £4.2m achieved in 2019. It’s also better than the “small loss” penciled in by analysts. What’s more, LOOK’s management also expects to reveal a reduction in net debt from £59.5m in 2019 to £45m by the end of last year.

At 52p a pop, shares in Lookers are already up 150% since last July. Notwithstanding this, they’re still far below the 157p they were trading at five years ago.

As things stand, a price-to-earnings (P/E) ratio of 11 looks reasonable value to me. Then again, it’s worth noting that the arrival of the third wave of the coronavirus in the UK could mean analyst projections are quickly thrown out of the window.

Arc Minerals

A final penny stock — and one I own — is copper explorer Arc Minerals (LSE: ARCM). Thanks to the buzz around electric vehicles, mining stocks have garnered a lot more attention recently. ARCM’s share price is up almost 350% in the last 12 months! That said, I think the £66m-cap is still flying under most investors’ radars.

Focused on copper deposits in the western part of the Zambian Copperbelt, Arc has stakes in two subsidiaries, Zamzort and Zaco. The reason it’s come to my attention in recent months is the possibility of a deal with mining giant Anglo American.

Is this nailed on? Definitely not. Moreover, a recent placing by the company — and subsequent reduction in its share price — only serves to highlight how tricky investing in this sector can be, and why no one should invest more than they’re prepared to lose.

So, Arc Minerals is undoubtedly a high-risk play. However, I expect fireworks later in the year if (and that’s a big ‘if’) all goes to plan. 

The post 3 penny stocks to buy now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Arc Minerals. 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.

But let’s stay optimistic. Thanks to their ability to rapidly increase revenue and profits, I think there are many small-cap growth stocks whose share prices could really shine. Here are three with strong potential. 

Drink up

Assuming bars, pubs, and sporting venues are allowed to fully open by spring, I think beverage firms such as AG Barr (LSE: BAG) could do well. Drinks companies do have a habit of bouncing back firmly after general market setbacks. This time should be no different.

That’s not to overlook just how hard the last year has been. Revenue and pre-tax profit have tumbled in 2020 due to the incredible headwinds faced by the hospitality sector. I’m also under no illusion that it will take some doing for Barr to recover back to the 950p mark it hit in 2019.

Then again, it’s got a lot going for it. In addition to its flagship IRN-BRU brand, Barr looks financially solid. The business had over £30m in net cash when it last reported to the market.

Although not currently paying out dividends, management does expect cash returns to resume in 2021 too. That’s the sort of bullish talk I like to hear.

Right space, right time

As widely expected, the share price of infection prevention specialist Tristel (LSE: TSTL) has enjoyed an excellent 2020. The £250m business is up almost 40% year-to-date. That’s despite sales being lower in early 2020 due to many operations being deferred by the pandemic.

Positively, CEO Paul Swinney revealed last week that Tristel had seen a “substantial recovery in demand” for its products since October. Pre-Brexit stockpiling by the NHS was a factor.

One reason the shares could continue rising in 2021 relates to the company winning approval from various regulatory bodies. In the US, Tristel has already spoken of “very encouraging progress” relating to its FDA test programme for its ‘Duo for Ultrasound’ disinfectant. Additional positive feedback has come from the Canadian regulator on its ‘Duo for Ophthalmology’ submission. 

Trading at 40 times forecast earnings already, at least some of this potential is already priced in. Even so, Tristel is a highly profitable, niche business with excellent finances. If another market crash presents me with an opportunity to do so, I’m backing the truck up. 

Ready to strike

For those of a risk-tolerant nature, ten-pin bowling firm Hollywood Bowl (LSE: BOWL) could also be worth backing.

While its offering is easily replicated, I think Bowl has a chance of recovering from the pandemic more speedily than, say, the UK’s battered airlines. A few games of bowling is far more affordable to families in tricky times than a holiday abroad. Even those with the means to travel when restrictions lift may adopt a ‘wait and see’ approach.

Only last week, the company reported it had seen “strong customer demand and better than expected performance” when it reopened after the first lockdown. That’s got to be encouraging.

The new tier 4 restrictions won’t help things in the near term. However, this may provide new investors an opportunity to strike on UK shares like this before the real recovery kicks in.

The post 3 UK small-cap growth shares I think could DOUBLE in 2021 appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Nichols and AJ Barr. The Motley Fool UK has recommended AG Barr, Hollywood Bowl, and Nichols. 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.

Let’s look at three examples.

Growing at a fair clip

Last week’s record full-year results from logistics firm Clipper Logistics (LSE: CLG) were lapped up by the market and understandably so. 

New frontiers

Another company doing very well for investors is videogames developer Frontier Developments (LSE: FDEV). Last Friday’s update sent the share price to an all-time high and, again, it’s easy to see why.

Having met sales expectations so far in the financial year, Frontier now believes it will deliver revenue “within the top half of the current range of analyst projections” (between £83m and £95m). At least some of this will be generated from the slate of releases due between now and the end of May 2021. 

Jurassic World Evolution will hit the Nintendo Switch in November. Two other titles – Lemnis Gate and Struggling – are being launched under the Frontier’s new label for third-party publishing (Frontier Foundry). This part of the company forms a big part of its strategy over the next few years.

In addition to this, there will be updates to existing titles: Elite Dangerous, Planet Coaster, and Planet Zoo. 

Frontier’s shares now trade on an eye-watering 61 times earnings. That’s too high for me (even for a growth share) but it could be one to pick up on general market weakness. 

Hot stock

I’ve covered kettle safety control manufacturer Strix (LSE: KETL) quite a few times now. I can’t resist drawing attention to the small-cap once again. Since April, its shares have been on the boil, rising almost 90%.

In July, Strix reported that performance over the first six months of 2020 had been “resilient“. A “marked recovery” in June coupled with a strong order book means it expects to report similar profits to those achieved last year. That’s not a bad outcome considering the supply side disruption it faced earlier in the year when factories in China needed to shut.

Highly cash generative, Strix continues to reduce its debt pile. At the end of June, net debt stood at just under £37m. Due to cost-cutting, this was roughly £6m lower than originally targeted.

Once a bargain, the stock now trades on a P/E of 16. With 14 new products due for launch this year, however, I can still see it moving higher. There’s a forecast yield of 3.5% to boot. 

The post Forget the stock market crash. I found 3 UK growth shares that have been flying! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of Strix Group. The Motley Fool UK has recommended Clipper Logistics and Frontier Developments. 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.

Pick well and you can make a shedload of money. Pick poorly, however, and you could lose all your capital. Here’s one stock that I think might just do the former.

Soaring small-cap

I’ve owned shares in would-be nickel producer Horizonte Minerals (LSE: HZM) for a few years now. For much of this time, my investment has been under water. Mercifully, that’s now changed.

Horizonte’s share price is up a little over 50% in the last month alone. Had you picked up the shares back in the dark days of March, you’d already be sitting on a gain of around 240%.

Aside from the bounce seen in markets generally, the reason for the price charge is down to Horizonte getting ready to build its Araguaia ferro-nickel mine in Brazil. This is one of two Tier 1 projects that, importantly, are 100% owned by the company.

Show me the money!

Earlier this month, Horizonte announced that it had mandated five international financial institutions to raise up to $325m in debt to part-fund the Araguaia build. Coronavirus-dependent, this should be done by the end of 2020. The remainder of the money needed ($125m) will then come from offtakes and a likely equity raise. 

Should things go swimmingly (and existing holders aren’t massively diluted), I can see the small-cap’s shares being worth multiples of their current value in a few years. This is assuming, of course, that Horizonte isn’t acquired beforehand. With few nickel-focused assets so close to production, it must surely be on the radars of the usual (mining) suspects.

Nickel price play

A takeover becomes even more likely if the price of nickel keeps rising. Thanks to growing demand from the EV battery sector and stainless steel market, there’s certainly a chance it could hit the $16,133/t analyst consensus for when Araguaia is ready to roll.

The ‘Tesla-effect’ can’t be discounted either. Let’s not forget that Elon Musk recently urged miners to dig up as much nickel as they could, adding that Tesla would award a “giant contract for a long period of time” to the company that does so in an efficient and environmentally friendly way. This is where Horizonte’s second Tier 1 asset — Vermelho — comes into play. 

Before you buy this small-cap…

But let’s not get ahead of ourselves. Despite recent progress (and a £15.6m cash position), Horizonte remains a high-risk proposition. Plenty of miners come a cropper on funding and the small-cap could still rip the shirt from your back.

Even if all the funding is secured, there will be traders ready to bank profits. This ‘sell on the news’ strategy means those intending to hold for the long term should brace themselves for volatility.

It also makes it essential for them to be diversified elsewhere (as I am) and not bet the house (which I haven’t). Like all investments, your exposure should take into account your financial goals, age and risk tolerance. If your stake keeps you awake at night, you’re probably doing it wrong. 

All caution (and bias) aside, however, there’s a chance the reward might be worth the wait.

The post Want £10,000? I’d buy £2,000 of this risky UK small-cap stock and wait appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of Horizonte Minerals. 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.

Is this an easy route to riches? Probably not, and here’s why.  

The problem with penny stocks

Now, don’t get me wrong: you certainly can become very wealthy if you buy the right minnows at the right time. But there’s the rub – identifying penny share winners and timing your purchases early enough is fiendishly difficult given the huge number of factors that determine whether a company succeeds or not. A potentially great business doesn’t always translate to a great investment. 

As well as being hard to sort the wheat from the chaff, those wanting to invest in this part of the market must also be aware of how ‘illiquid’ penny stocks can be. Liquidity means how easy it is to buy or sell something without affecting its price. Illiquidity can be great when the herd wants to buy (causing shares to jump) but a nightmare when everyone sprints to the exit. Forced sellers must often accept prices that, in normal circumstances, they would laugh at. 

The huge volatility seen in penny stocks is worth remembering right now. It would be wrong to assume that many of those coronavirus-linked stocks that have soared over the past few months won’t suddenly tumble in value. This may be due to another broad market crash, traders banking profits, or news that the products they supply are no longer needed or ineffective.

It doesn’t stop there with penny stock drawbacks. Young companies, particularly those in high-risk, high-reward sectors, often need to tap the market for more cash just to keep the lights on. Sadly, this isn’t always forthcoming and many are forced to fold, making the shares worthless.  

Make no mistake, penny stocks can make you rich but they’re also far more likely to leave you poor.

A better solution

Rather than attempt to find the needle in a haystack, there are other, safer ways of tapping into healthcare or biotechnology.

For the former, you could always buy a FTSE 100 juggernaut like AstraZeneca or GlaxoSmithKline. For the latter, you can buy active funds that specialise in this part of the market. Two of the most popular are Biotech Growth Trust (LSE: BIOG) and International Biotechnology Trust (LSE: IBT). 

Another option is to buy passive funds that focus on these themes. Like their active equivalents, these give instant diversification to holders by investing in a large number of stocks. And since they’re only out to track rather than beat indexes, the fees are a lot lower.

Examples include the iShares Healthcare Innovation UCITS ETF. The iShares Ageing Population UCITS ETF, which gives exposure to companies providing products and services to those in their golden years (many of which will be healthcare-related), is also worth considering. Both funds have ongoing charges of just 0.4%. 

Bottom line

A punt on coronavirus-related penny stocks might make you rich but there’s a very real chance it will go wrong. If you’re tempted, I’d suggest only using money you can afford to lose. Put the majority of your capital to work in far less risky options. 

The post Forget coronavirus penny stocks! I think there’s an easier way to get rich appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

At the beginning of 2020, shares in the market minnow were changing hands for just 14p each. At the close yesterday, the very same stock was trading at 426p, so some investors will have made a lot of money.  

Will this form continue? Today’s update from the company was certainly encouraging. That said, I’d be wary of becoming excessively bullish on the shares if I were thinking of buying now.

Novacyt in demand 

Taking into account its agreement with the UK Department of Health and Social Care and collaborations with GlaxoSmithKline, AstraZeneca, and The University of Cambridge, the clinical diagnostics specialist announced it had generated £90m worth of orders for its Covid-19 test. 

As a further sign of just how much demand there is, the company went on to remark it’s now supplying the test to “more than 100 countries” with new approvals having just arrived from Ecuador and Malaysia. What’s more, the firm also spoke of “evaluating potential options to further expand its presence” in the US.

Of course, orders are only good if they can be fulfilled. Earlier this month, Novacyt said it would increase manufacturing capacity to roughly 8m tests per month. Today, it revealed it expects to meet this output in June. In addition to its two manufacturing sites, the company has also signed deals with six other manufacturers, allowing it to scale-up beyond this number when needed.

CEO Graham Mullis was understandably bullish, commenting that the visibility on sales was “transformational” for the company. He also said this demand “could continue for some months.”

Today’s news was undeniably positive. As great as all this sounds, however, I’m beginning to wonder if the ‘smart money’ has already been made.

Priced in?

Novacyt’s share price was up a few percent in the first few minutes of trading. That’s nothing like the gains seen in previous trading days. This suggests to me the market had already priced in much of today’s statement. 

This reaction highlights the problem with small-cap investing. Since a lot of these companies are still loss-making (Novacyt being an example), all momentum rests on hope and hype. That’s fine if you manage to time your entry well, but it can be testing when investors begin taking profits. 

Although they’re available for 436p, as I type, Novacyt’s shares were trading as high as 491p in mid-April. Had you bought at the peak, you’d now be 11% underwater. In the meantime, more established, profitable and liquid (easily traded) FTSE 100 or FTSE 250 stocks would have made you a lot of cash in the recent rally.

Don’t get greedy

Novacyt’s gains over the last couple of months have been nothing short of remarkable. Notwithstanding this, I’d caution anyone from buying a lot of the stock now. With the next stage of the pandemic hard to accurately predict, I think there’s still potential for people to lose their shirts if they chase gains and go ‘all-in’. 

If you simply must invest, I’d advise doing so with money that you can afford to lose. Put the rest of your cash in quality stocks that have rewarded investors over the long term. 

The post Can coronavirus test-maker Novacyt still make you rich? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. 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.

With this in mind, here’s one stock that I think should do no harm to investors’ wealth prospects over the medium-to-long term. It could even help them to retire early!

Small-cap, huge growth

Go back a few months and the share price of advanced testing systems designer, manufacturer and supplier AB Dynamics (LSE: ABDP) was riding high. Based on today’s numbers, it’s not hard to see why. 

Serving the automotive sector, revenue at the small-cap rose 34% to £34.7m over the six months to the end of February. Positively, 25% of this was recurring, up from 10% thanks in part to contributions from recent acquisitions.

Broken down, the firm achieved strong sales growth in both its track testing and lab testing/simulation sectors (29% and 82% respectively). In line with its push to grow overseas, “particularly strong” performances at its sales offices in the US and Japan were also reported.

Uncertain times

Despite these stellar results, AB’s stock was down (very) heavily in (very) early trading. Although surely anticipated, much of this looks to be a reaction to the rather gloomy outlook.

Performance over the second half of the financial year is now “highly uncertain” thanks to the virus. While “a material reduction” in business is yet to be seen, it did say that some larger orders had been deferred. Unsurprisingly, guidance on earnings for the year was withdrawn.

Despite all this, I remain optimistic on ABDP’s ability to weather the storm.

For one, the company is doing exactly what you’d expect to survive this sticky period. Discretionary spending and capital expenditure have been reined in. The interim dividend has also been suspended.

Secondly, it has the sort of finances many firms would kill for. The £340m cap is debt-free and had cash of a little over £35m at the end of February. This is 86% higher than in the previous year. 

Third, it’s hard not to be bullish on the small-cap’s prospects considering the ongoing importance of protecting drivers. The increased adoption of autonomous systems surely bodes well for the Bath-based business, once the coronavirus crisis has passed.

Naturally, being an owner of the stock already makes me somewhat biased. The fact that I haven’t even considered selling in the market crash, however, is testament to how confident I am on the likelihood of it generating great returns in time.

Steer clear

Another automotive-related small-cap stock I still won’t go anywhere near, however, is breakdown service provider and insurer AA (LSE: AA). 

While AB Dynamics is a clear leader in its niche, the AA continues to operate in a highly competitive environment. Given the low barriers to entry, the alarming drop in new car sales, and the possibility of a long recession, I can’t see how the firm will significantly increase its membership count going forward. 

In addition to all this, AA’s balance sheet continues to creak with debt. Why invest in a company with such huge liabilities when there are so many better opportunities elsewhere? 

Less traffic may mean fewer callouts for a while. However, I’m very sceptical over AA’s ability to help its investors retire rich.

I suggest Fools continue to steer clear of this value trap.

The post Looking to retire early? I think this small-cap stock will help appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of AB Dynamics. The Motley Fool UK has recommended AB Dynamics. 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.

With that in mind, here’s a look at my top three UK small-cap stock picks for 2020.

Artificial intelligence-fused digital marketing

DotDigital Group (LSE: DOTD) is a fast-growing technology company that specialises in artificial intelligence-fused digital marketing solutions. Its key marketing platform, Engagement Cloud, which helps businesses connect with customers, is used by over 70,000 marketers in 156 countries.

DotDigital issued a strong set of full-year results in mid-October. For the year ended 30 June 2019, organic revenue from continuing operations climbed 15% to £42.5m, while adjusted earnings per share jumped 33% to 3.88p. Meanwhile, recurring revenue as a percentage of total revenue climbed to 86%.

Looking ahead, analysts expect revenue and earnings per share of £48.9m and 4p respectively this year. I believe there’s a good chance the group will beat these forecasts, given its strong growth in the US and Asia. This could send the share price significantly higher. 

At present, DOTD shares trade on a forward-looking P/E ratio of 24.5. I see that valuation as very attractive.

Legal industry disruptor

Next up, Keystone Law (LSE: KEYS). This is an innovative, next-generation law firm that is disrupting the market by enabling lawyers to work from home or their own offices. It currently has over 300 lawyers on board (it believes its addressable market is potentially 47,000 lawyers), and its clients include Tesco, the BBC, and Siemens.

Keystone has grown at a rapid rate over the last few years (three-year revenue growth of 104%) and I’m expecting further growth in the years ahead. Directors believe the business model enables “rapid scalability” and if the special dividend of 8p that was declared in the group’s first-half results in September is anything to go by, management is certainly confident about the future.

Turning to the valuation, Keystone shares currently trade on a forward-looking P/E ratio of 37. That is a lofty multiple, however, given the exciting growth prospects here, I don’t see it as a deal-breaker.

Autonomous vehicles play

Finally, my last UK small-cap stock pick for 2020 is AB Dynamics (LSE: ABDP). It’s a provider of integrated test systems for the global automotive industry. Given that the group’s products are integral to the development of new vehicles, I see ABDP as a good way to gain exposure to the self-driving cars market. In the years ahead, manufacturers will need to evaluate their autonomous vehicles extensively under a large number of complex scenarios and ABDP is well placed to benefit.

AB Dynamics issued a great set of full-year results in late November. For the year, revenue climbed 56%, while adjusted diluted earnings per share increased 50%. The company also said that it remains confident that it will continue to deliver further growth in the coming year. However, since the results, the shares have pulled back from above 2,800p to around 2,000p.

I think this pullback has created an attractive entry point. Given the company’s strong growth, I think the stock’s forward-looking P/E ratio of 30.7 is quite reasonable.

The post Looking to outperform the FTSE 100? Here are my top UK small-cap growth stocks for 2020 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in dotdigital Group and Keystone Law. The Motley Fool UK has recommended AB Dynamics, dotDigital Group, and Tesco. 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.

Once again, the emphasis will be on picking established, quality businesses with room to grow that also pay dividends.

High returns

While some might view kitchen supplier Howden Joinery as cyclical, I still think it warrants consideration from investors willing to look outside the FTSE 100. Howden sells kitchens to builders rather than homeowners, which means it should get repeat business, regardless of what’s going on with the economy. It also has a couple of things I’m attracted to when screening for stocks: a consistently high return on the money it invests in its business, and zero debt. 

The shares have had a very good run of late and I’d prefer to buy at a cheaper price, but it’s hard to rule out a firm of this quality. The yield is 2%.

Top brands

Like fund manager Terry Smith, I’m rather partial to companies selling small-ticket, branded items that are in demand during good times and bad. That’s why I particularly like stocks in the drinks industry.

The natural pick from the FTSE 250 for this sector would be Robinsons and J2O-owner Britvic. Recent results from the £2.6bn-cap weren’t exactly sparkling, due to problematic trading in France. But this should turn out to be blip rather than a crisis. The shares currently trade on a little less than 16 times expected earnings and yield 3.3%

Food on the go

If you regularly buy something at a station or airport, you’ll know just how valuable a captive market can be for a business. That’s why my third pick is SSP Group, which manages food and drink sites at busy travel locations. Its brands include Upper Crust and Ritazza, but it also manages Burger King and Starbucks outlets.

Perhaps, understandably due to the uncertainty surrounding how Brexit will impact the travel industry, it’s been a rollercoaster 2019 for the shares. However, the long-term trend is most definitely up. SPP’s shares trade on 21 times earnings and come with a 1.9% dividend yield.

Chunky yield

A combination of new regulatory hurdles and a lack of volatility in the markets have made the last couple of years pretty uncomfortable for online trading specialist (and market leader) IG Group.  

That said, recent performance has been far from disastrous and the forthcoming general election should be lucrative since traders will want to get involved in a potential ‘Corbyn crash’ or, perhaps more likely, ‘Boris bounce’. While not as cheap as they once were, its shares currently trade on a still-reasonable 17 earnings and yield a chunky 6.3%. 

Go small

All long-term investors should have some exposure to market minnows, in my opinion. That’s why my final pick is actually not a single company but a near-30-year-old FTSE 250-listed investment trust with 79 holdings.

While ongoing costs will be higher than if you were to adopt a passive investment strategy, the fact the Aberforth Smaller Companies Trust share price has grown annually by almost 13% since inception should compensate for this. Moreover, the Trust pays a dividend (most small-cap funds don’t) which, when reinvested, should help compound gains even further. 

The post Have £5k to invest? Here are 5 stocks I’d buy for a FTSE 250 starter portfolio appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares of IG Group Holdings. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Howden Joinery Group. 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.