Amazon

What it does: Amazon is a tech company that operates in a range of areas including e-commerce, cloud computing, and digital advertising.

By Edward Sheldon, CFA. I’ve owned Amazon (NASDAQ: AMZN) shares for several years now. However, in late May, I added to my holding. 

One reason I’m bullish here is that the company is focused on becoming more efficient right now. Not only is it cutting jobs, but it is pulling out of unprofitable ventures. This could have a big impact on its bottom line in the years ahead.

Another is that the company is making some interesting moves in the artificial intelligence (AI) space. Recently, it launched a service called ‘Bedrock’ that lets customers build their own generative AI tools (like ChatGPT). This could boost its revenues.

Finally, I also like the fact that after a long period of share-price weakness, the stock is now trending up again. I’m hoping this trend will continue.

Of course, it may not continue. If sentiment towards tech shares deteriorates, there’s a good chance the stock will fall.

In the long run, however, I think it has bags of potential.

Edward Sheldon owns shares in Amazon.

American Tower

What it does: American Tower is a real estate investment trust (REIT) that owns and operates wireless and broadcast communications infrastructure.  

By Ben McPoland. There are expected to be 7.7bn smartphones in the world by 2030, up from an estimated 6.8bn today. And one giant REIT, American Tower (NYSE: AMT), continues to directly benefit from this astonishing growth.

It operates cellphone towers and more recently data centres. In fact, its portfolio contains a staggering 226,000 global communications assets, including more than 43,000 properties in North America and some 182,000 internationally.

Revenue soared from $1.5bn in 2008 to $10.7bn in 2022. But if technologies like virtual reality and self-driving cars ever go mainstream, then demand for 5G infrastructure and data centres should explode higher.

The share price is down 22% over one year, meaning the 3.3% dividend yield is now double the S&P 500 average. One concern is that American Tower does have a fair bit of floating debt, so dividend increases could be constrained while it adjusts its composition of debt. 

However, I’ve been buying. I think the dividend could be sustainable for decades as the digitisation of the world accelerates.

Ben McPoland owns shares in American Tower.  

Diageo 

What it does: Diageo is one of the world’s biggest drinks manufacturers thanks to brands like Smirnoff and Johnnie Walker. 

By Royston Wild. Like billionaire investor Warren Buffett, I’m a big believer in buying quality shares when they fall in value. It’s why I’ve increased my holdings in alcoholic drinks giant Diageo (LSE:DGE) in recent days. 

The FTSE 100 company struck its current highs for 2023 of £37.70 per share in late April. Since then it’s dropped 11% in value on worries over slowing sales in North America, falling investor interest in defensive stocks, and uncertainty over the firm’s direction under new chief executive Debra Crew. 

I believe that the scale of Diageo’s share-price drop is unwarranted. The firm’s ongoing drive into the premium and non-alcoholic drinks segments should continue to push earnings higher. I also think its huge stable of market-leading brands and wide geographic wingspan make it a winner. Soaring disposable incomes in emerging regions could light a fire under group revenues.

Sure, the company still commands a fatty premium — it trades on a price-to-earnings (P/E) ratio of 19.2 times for the new financial year beginning in July. But I think the drinks maker is worthy of a princely rating.

Royston Wild owns shares in Diageo. 

easyJet

What it does: easyJet is a low-cost airline carrier and package holiday company with a primary focus on European markets.

By Charlie Carman. easyJet (LSE:EZJ) is a stock that looks destined for growth as the company benefits from pent-up demand for foreign travel in the wake of the pandemic.

An 80% improvement in revenue to £2.7bn during the first half of the year and a 41% uptick in passengers to 33.1m are encouraging signs.

Higher fares and costs for ancillary extras, such as baggage, aren’t dissuading holidaymakers so far. The company’s revenue per seat is currently running 20% higher than the prior year.

The business faces risks from possible fuel price shocks in an uncertain geopolitical climate. However, easyJet’s taken steps to mitigate this by hedging 69% of its fuel for the rest of the financial year.

Overall, I think bookings will remain high despite the cost-of-living crisis. After ramping up capacity, easyJet is well positioned to capitalise on this trend. I think the shares could fly higher if the company enjoys a strong summer.

Charlie Carman owns shares in easyJet. 

Intuitive Surgical

What it does: Intuitive Surgical designs and distributes robotic surgery machines to hospitals and clinics worldwide, enabling minimally invasive care.

By Zaven Boyrazian. Intuitive Surgical (NASDAQ:ISRG) is the world leader in robot-assisted surgery devices, controlling over 80% of the global market.

As of the end of March this year, 7,779 of its da Vinci machines have been deployed in hospitals and clinics worldwide. However, the firm doesn’t merely sell its machines and move on. Instead, customers constantly have to return to Intuitive and repurchase consumable attachments for these devices, such as scalpels.

This locks hospitals into Intuitive’s ecosystem, creating a highly lucrative razor-and-blade business model. So, it shouldn’t be surprising to hear that growth continues to expand at a double-digit pace, with sales reaching $1.7bn in the first quarter of 2023 alone. $986m of that came from the various instruments and accessories used in combination with its machines.

With the cost of robotic surgery dropping each year, its adoption has been slowly accelerating. And so far, it looks like Intuitive Surgical will continue to dominate the market for many years to come.

Zaven Boyrazian owns shares in Intuitive Surgical.

Kraft Heinz

What it does: Kraft Heinz is a packaged foods company, best known for its ketchup, cheese, and baked beans.

By Stephen Wright. I’ve been buying shares in Kraft Heinz (NASDAQ:KHC). It’s not the most exciting company, but it offers a lot of what I look for in a stock investment.

First of all, it has a business that is easy to understand. Demand for its products is likely to remain steady through macroeconomic fluctuations. 

Second, it has a couple of competitive advantages. The first is its size, giving it an edge in terms of costs and the second is its brands, which command space in most supermarkets.

Third, the stock has been selling at a decent price lately. It has a dividend yield above 4% and I think there’s scope for returns to be higher in future.

Inflation remains a risk, but this is subsiding in both the US and the UK. So I’ve been adding to my stake in Warren Buffett’s seventh biggest stock investment.

Stephen Wright owns shares in Kraft Heinz.

Nvidia 

What it does: Nvidia is an artificial intelligence (AI) company that manufactures and designs computer hardware and software. 

 By Charlie Keough. I recently opened a small position in Nvidia (NASDAQ: NVDA). Shares in the AI business have skyrocketed over 180% in 2023. And I think the firm has a bright future. 

The AI sector is set to boom in the years ahead, with Nvidia leading the revolution. 

Its Q1 results showed its potential, with the firm posting a strong set of results. However, it was its forecasts for Q2 that really took the market by storm. For the period, revenue is expected to come in at $11bn, 50% higher than what Wall Street had predicted. In my opinion, this signals just the start of what could be exciting years ahead for the industry and Nvidia.  

The stock may look expensive to some, understandably, with a price-to-earnings ratio of over 200. However, this is cheaper than a host of its competitors.  

The Nvidia share price has been on a steady rise since its results announcement. And I intend to continuously increase my position in the months ahead. Should the stock dip, I’ll be rushing to buy more.

Charlie Keough owns shares in Nvidia.  

The Property Franchise Group

What it does: Property Franchise Group is the second-largest estate agency network in the UK. It operates a range of brands on a franchise model.

By Roland Head. Now might seem a strange time to buy shares in an estate agency group. But The Property Franchise Group (LSE: TPFG) doesn’t depend solely on home sales for its profits.

Strong growth in lettings activity over the last couple of years mean more than half the company’s income now comes from rentals. This proportion is expected to continue growing.

High profit margins are another attraction. As a franchise business, the group generates fees from franchisees without the cost of running physical branches. Property Franchise’s operating margin was 34% last year.

Profits have doubled since 2019 and management are continually recruiting new franchisees. Notably, the group acquired the Hunters agency brand in 2021.

There are obviously risks in the current market. A big slump would still hit profits. But Property Franchise shares trade on just 12 times forecast earnings, with a 4.4% yield. That looks decent value to me.

Roland Head owns shares in Property Franchise Group.

Taiwan Semiconductor Manufacturing Company

What it does: TSMC is the world’s biggest chip foundry. It manufactures and designs a variety of advanced chips for the world’s largest tech companies.

By John Choong: The recent AI hype has seen the valuations of AI-related stocks rocket in value. This has resulted in many of those stocks also being overvalued. However, there are still a few companies who stand to gain as much as the likes of Nvidia and Microsoft, but are still trading on relatively cheap multiples — and one such company is Taiwan Semiconductor Manufacturing Company (NYSE:TSM).

The foundry is the direct manufacturer and supplier for Nvidia’s chips. As such, it’ll be a direct beneficiary of Nvidia’s tremendous potential in the AI space. And with most of its clients like Apple now moving into smaller nanometre chips (3nm), the gap left behind will be comfortably filled by Nvidia’s demand (5nm).

Pair the above with rebounding chip demand over the next year and beyond, and TSMC can expect its revenues and profits to increase monumentally from here. Considering its current and forward multiples, TSMC stock is extremely cheap in relation to its AI-related peers, and has been one I’ve been buying.

John Choong has positions in TSMC.

Vistry Group

 What it does: This FTSE 250 company is a British housebuilder, with a private market and affordable homes business.

By Dr James Fox. As a value investor, I’m on the lookout for companies that trade at low multiples, but have a clear route to growth. For me, that’s Vistry Group (LSE:VTY). It trades at just 5.6 times earnings.

Housebuilders, as a whole, are down due to concerns about market. House prices fell 1% over the year, during which cost inflation was running near double digits. But it’s been nowhere as bad as forecast.

For me, the concerns have been more than priced in. Moreover, Vistry has been somewhat insulated by its partnerships or affordable homes business. The government is actually trailing its affordable homes target. So there could be a further boost for this side of the company’s operations.

Of course, even higher interest rates won’t be good for private sales. However, Vistry remains a very attractive opportunity with an above-average 7.2% dividend yield. And that’s why I’ve been buying more.

Dr James Fox owns shares in Vistry Group.

The post 10 stocks that Fools have been buying! appeared first on The Twelfth Magpie.

Zaven Boyrazian: Bioventix

Bioventix (LSE:BVXP) is a specialist producer of monoclonal antibodies. These are an essential ingredient for performing blood tests when diagnosing a patient. It’s undoubtedly a niche product but remains in high demand as revenues have consistently grown by double digits over the last five years.

Recently, the stock has taken a hit as hospitals have prioritised spending in areas dealing with Covid-19. Consequently, the group’s bottom line has suffered for it. But, with the vaccine rollout making good progress and the world adapting to the pandemic environment, these disruptions may soon be coming to an end.

As such, I think this could be an excellent addition to my portfolio.

Zaven Boyrazian does not own shares in Bioventix.

Ed Sheldon: Calnex Solutions

My top British small-cap stock for January is Calnex Solutions (LSE: CLX). It’s a leading provider of testing and measurement services to the telecommunications industry.

Calnex looks well placed to benefit from the global telecommunication industry’s upgrade to 5G technology. 5G is ultimately the key to many of the exciting new technologies we keep hearing about such as self-driving cars and remote surgery. Networks will need to be tested thoroughly in order for these kinds of technologies to go mainstream.

One risk to consider here is the ongoing semiconductor shortage. This could cause disruption. However, with the stock trading on a P/E ratio of less than 25, I think the risk/reward proposition is favourable.

Edward Sheldon owns shares in Calnex Solutions.

Roland Head: Finsbury Food

My small-cap pick for January is bakery firm Finsbury Food (LSE: FIF). This group supplies supermarkets and also sells under its own brands.

Finsbury has been going through a turnaround period, but now appears to be trading well. Earnings rose by 15% last year and brokers expect growth of 26% for the year ending 26 June.

Rising costs are a concern and supermarkets will always be tough customers. But I’m impressed by Finsbury’s recent performance. I think the stock still looks good value at under 10 times forecast earnings. I hold Finsbury shares and would buy more.

Roland Head owns shares of Finsbury Food.

Rupert Hargreaves: Michelmersh Brick Holdings

My top small-cap is Michelmersh Brick Holdings (LSE: MBH). The specialist brick manufacturer looks set to report a bumper year of growth for 2021, which could underpin further development in the year ahead.

The firm has no debt and a cash-rich balance sheet, suggesting that it has the financial headroom to support its growth ambitions this year. There is also room for shareholder returns. Michelmersh currently supports a dividend yield of 2.5%.

Inflation and competition are the two primary risks the business will have to overcome going forward. Despite these challenges, I would buy this small-cap stock today.

Rupert Hargreaves does not own shares in Michelmersh Brick Holdings.

G A Chester: B.P. Marsh & Partners 

B.P. Marsh (LSE: BPM) is a specialist investor in unquoted, early-stage financial services businesses that are in need of growth capital. 

Marsh looks for strong management and business plans. It takes a minority equity stake (typically 20%-40%), and aims to be a supportive, long-term partner. It works with management to grow the business’s value, ultimately towards a profitable exit via a public flotation, trade sale or other route. 

It has a long history of delivering value for shareholders through net-asset-value (NAV) appreciation and dividends. The shares are currently trading at a 20%+ discount, and I’m expecting a further NAV uplift in an early-February trading update. 

G A Chester has no position in B.P. Marsh & Partners.

Niki Jerath: Zephyr Energy 

For January, I’m looking at Zephyr Energy (LSE:ZPHR). This has oil and gas interests in Utah, Colorado and North Dakota.  

As oil and gas prices increased during 2021, its shares surged by over 600%. Although year-to-date, the stock is down around 2% due to worries about the Omicron variant. 

That said, its Paradox Basin project, in Utah, shows a lot of promise for 2022 and it has a pending deal in North Dakota, which was delayed last year. 

I could be wrong, but if the transaction goes ahead, I expect the share price to see a jump. 

Niki Jerath does not own shares in Zephyr Energy

Royston Wild: Card Factory 

I think Card Factory (LSE: CARD) is a small-cap stock whose eye-catching all-round value merits serious attention. The card and greetings retailer trades on a forward P/E ratio of below 6 times. It sports a mammoth 6.1% dividend yield as well. 

I like Card Factory for a number of reasons. Its strategy of selling products at low prices puts it in good shape to ride the value retail revolution. Recent investments in digital will allow it to make money during the e-commerce boom. I also like Card Factory’s focus on a more-defensive part of the retail market. We don’t stop celebrating birthdays, Christmas and other special occasions when times get tough, right? 

Royston Wild does not own shares in Card Factory.

Paul Summers: Cake Box Holdings

At 25 times earnings, shares in Cake Box Holdings (LSE: CBOX) certainly aren’t cheap. That said, the company’s fundamentals help justify this valuation. Returns on capital and operating margins are consistently high and there’s net cash on the balance sheet. CEO Sukh Chamdal also owns almost 25% of the company, which should mean that his interests are aligned with those of other investors.

Having already climbed 70% in the last year, share price growth may moderate in 2021. However, this looks like the sort of quality minnow I’d be comfortable holding a stake in for years rather than months.

Paul Summers has no position in Cake Box Holdings

Andy Ross: Property Franchise Group 

Shares in Property Franchise Group (LSE: TPFG) bring together an attractive combination of growth and income. Over three years the shares have gone from 120p to around 314p. Historic share price growth then has been good. The dividend yield is currently around 3%, but with decent levels of dividend cover, as well as earnings growth, I’m sure the dividend can keep growing.  

As a franchising operation, the business has high operating margins and returns on capital. For me, this makes Property Franchise Group a top British small-cap stock and I’ll likely be adding more, especially if the share price dips again.  

Andy Ross owns shares in Property Franchise Group.

The post Top British small-cap stocks for January 2022 appeared first on The Twelfth Magpie.

Tasty profit

First up is fresh-cream-but-egg-free cake maker/retailer Cake Box (LSE: CBOX). Back in June, the company reported revenue and pre-tax profit had climbed 16.9% and 11.8% respectively over the 12 months to the end of March. That’s really something when you consider its stores had to temporarily close during 2020.

Thankfully, online sales took the strain. These rose 84%, supported by the development of its own delivery platform. In addition to this, CBOX has also been introducing new products that cater to vegans and those on gluten-free diets.

Based on its rapidly expanding estate, I think the future looks pretty sweet for the company. Operating a franchise model, it had 157 stores by the end of the financial year. A further nine franchise stores have since been added with the company targeting 18-24 in total over FY22.

Factor in many people wanting to celebrate important events they previously couldn’t and I think it unlikely trading will suddenly reverse. I’m also encouraged by CEO Sukh Chamdal still owning 32% of the company. If I’m to back a small business, I want to know those running it have a significant amount of their own cash at stake.

Hot market

Another stock that could prove to be one of the best shares to buy in the small-cap space right now is Property Franchise Group (LSE: TPFG). Now the largest property franchisor in the UK, the firm also manages the second largest estate agency network and a portfolio of lettings properties in the UK.

In its recent trading update, the company reported like for like revenue and management service fees were “significantly up” over the first half of 2021, compared to the same six months in 2020. While that might be inevitable considering the impact of Covid-19, this result also beat numbers from 2019.

The reason? A white-hot UK housing market has generated huge sales growth. Increasing prices have also allowed the company to collect a larger average fee. Since this shows no signs of slowing down just yet, TPFG now is confident of “a very strong trading performance for the full financial year“. The recent purchase of Hunters estate agents will no doubt help as well.  As such, I think the shares could go higher from here.

Know the risks

Before buying either (or any) small-cap stock, investors need to be aware that their share prices have the potential to be highly volatile. Part of the reason is that minnows tend to have small ‘free floats’. This refers to the proportion of a company’s shares trading on the market. In practice, a small float means it only takes a bit of selling or buying to produce big swings.

There are more specific things to consider. Based on current earnings estimates, CBOX shares change hands for 25 times earnings. That’s not excessive, but nor is it a bargain either. A P/E of 14 makes Property Franchise far cheaper. However, it’s naturally exposed to a slowdown in the property market — although this may be some way off.

As always, it’s vital to keep expectations in check. 

The post 2 of the best small-cap shares to buy now appeared first on The Twelfth Magpie.