2 top stocks I’d buy in February

Bilaal Mohamed believes now could be a great time to buy a peice of these two compelling businesses.

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Commentators often tell us not to try to time the market as many failed traders will tell you this is an almost impossible task. Although I totally agree with this advice, I personally believe we should still try to do our utmost to buy quality stocks at the best possible price. So today I’m looking at two smaller London-listed firms whose strong upward share price momentum seems to have paused for breath in recent months, perhaps signalling a buying opportunity for new investors.

Historical highs

Less than a decade ago shares in AIM-listed Scapa Group (LSE: SCPA) were changing hands for less than 10p each, but after delivering very strong and sustained levels of growth over the years, they now trade at more than 40 times that value. In fact, for a brief moment last summer, the share price closed above the 500p mark for the first time in the company’s history, before drifting lower to today’s levels around 470p.

The group based in Ashton-under-Lyne, near Manchester, is a global supplier of bonding solutions and a leading manufacturer of adhesive-based products for the Healthcare and Industrial markets. The company has a truly global footprint with manufacturing sites right around the world, with the vast majority of sales coming from within Europe, North America and Asia.

Geographic ‘insulation’

This wide geographic spread has somewhat insulated the company from many of the uncertainties that have made the current environment very challenging for many of its peers, particularly the effects of recent currency fluctuations and the as-yet-unknown longer-term impact of Brexit.

From a valuation standpoint, the current share price translates into an expensive-looking price-to-earnings (P/E) multiple of 27 for the current fiscal year to March. But with City analysts forecasting more double-digit rates of growth in the coming years I think the shares are well worth that premium price tag.

Electronic warfare

If Scapa’s pricey-looking valuation is still a little too rich for your taste, then fellow AIM constituent Cohort (LSE: CHRT) might be better suited to your palate. The Reading-based technology group also saw its shares take a little breather in 2017 after an impressive run that led to a sixfold increase in its market capitalisation in as many years.

The group currently operates four innovative, agile and responsive businesses based in the UK and Portugal, which provide a wide range of services and products for domestic and export customers in the defence and security markets. Particular areas of focus include electronic warfare, cyber security, surveillance technology, and advanced communications systems.

The group’s shares have fallen back from last year’s all-time highs of 462.5p and now look to be offering greater value at 12 times earnings for the current year to April. For this reason Cohort is currently my top pick from the defence and aerospace sector.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any of the shares mentioned. The Motley Fool UK has recommended Cohort. 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.

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