2 high-quality AIM shares I’d buy for my Stocks and Shares ISA

AIM may have its fair share of less attractive companies, but Paul Summers thinks these proven winners are worthy additions to a Stocks and Shares ISA.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The junior market (AIM) is often labelled as the Wild West of investing. While it’s probably true that many of its members aren’t particularly good businesses, there are a few that buck this trend. Accordingly, I think they deserve a place in a Stocks and Shares ISA. Floor-covering manufacturer and distributor James Halstead (LSE: JHD) is one example.

Boring but beautiful

Yes, I know — JHD’s line of work will never quicken the pulse in the same way as a blue-sky tech stock might. Then again, I find many of the best long-term investments tend to be those that never make the headlines. Despite shares up roughly 2,000% over the last 20 years, James Halstead has managed to remain a low-key operator.

Today’s interim results show the mid-cap firm is continuing to do all the right things. At £130.5m for the six months to the end of last December, revenue was pretty much identical to that achieved last year. However, it’s worth pointing this level of sales was a record for the company. That’s some feat considering how disruptive the pandemic has been. At £26m, pre-tax profit was 3.3% higher than over the same period in 2019. This was another record result.

As an investment, James Halstead ticks a lot of my boxes. It operates in many markets around the world, serving customers in many industries (retail, hospitality, healthcare). It also generates great returns on capital — a key metric for star fund managers such as Nick Train and Terry Smith. On top of this, JHD has a bulletproof balance sheet and consistently increases its dividends.

All this aside, there are a few drawbacks to investing now. For one, the shares are expensive to acquire, trading as they do on 29 times forecast earnings. While performance over the very long term has been fantastic, some may be put off by the fact that the company is now worth over £1bn. As such, big share price gains are less likely going forward. 

On balance though, I’d be happy to add a stake to my Stocks and Shares ISA today.

Under-the-radar winner

Another quality AIM-listed stock, in my opinion, is Mortgage Advice Bureau (LSE: MAB1). Like James Halstead, the stock has shown itself to be an excellent long-term investment. Since listing in 2014, the share price has climbed over 600%.

Last week’s full-year results for 2020 suggests there’s more to come. Despite gross new mortgage lending falling 9% in the market as a whole, MAB’s revenue rose by 3% to a little over £148m.

Mortgage completions were up by 5% to £17.6bn and the firm grew its market share of new mortgage lending to 6.3%. Quickly establishing itself as an excellent source of dividends, the mid-cap also raised its total payout by 46%!

In terms of risk, MAB is clearly exposed to a any downturn in the housing market. While the Stamp Duty holiday extension and the growing availability of 95% mortgages are reasons to be optimistic about demand, we still don’t know the full economic impact of the pandemic.

Secondly, the shares are even more expensive to buy than those of James Halstead. MAB has a forecast P/E of 31.

Of course, it isn’t necessary to invest in MAB directly to get exposure. The company makes up almost 4% of CFP SDL Free Spirit — a fund I hold within my own Stocks and Shares ISA.

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.

Paul Summers owns shares of CFP SDL Free Spirit. 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.

More on Investing Articles

A young Asian woman holding up her index finger
Investing Articles

A “once in a lifetime” opportunity for Rolls-Royce shares?

One firm is hoping now is a “once in a lifetime” opportunity for UK nuclear companies. Our writer reveals whether…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

The IAG share price is dirt cheap and profits are flying. So why am I worried?

After today's positive full-year results, I expected the International Consolidated Airlines Group (IAG) share price to be doing better than…

Read more »

Investing Articles

Is Tesla stock a steal below $200?

Tesla stock has fallen 19% so far in 2024. Currently hovering around $200, this Fool checks if now is the…

Read more »

Investing Articles

3 high-yield dividend stocks to consider for my passive income portfolio in 2024

I want to build a portfolio of dividend stocks that pay enough passive income to retire comfortably. Here are my…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Direct Line shares soar 25% on takeover bid!

Direct Line shares surged by a quarter on Wednesday, after receiving a takeover bid from a Belgian rival. But the…

Read more »

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »