2 UK growth shares I’d buy in July

The FTSE 100 is stagnating, but is this an opportunity to buy UK shares at a discount? Zaven Boyrazian explores two growth stocks on his radar.

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The recoveries of UK shares in general and the FTSE 100 specifically seem to have suffered a slowdown recently. Despite returning to the critical landmark if 7,000 points in April, the Footsie has since remained relatively flat and only moved around 2% over the last two months.

There are undoubtedly countless reasons for this lacklustre performance. However, in my experience, such events can be opportunities to buy businesses at better prices. After all, stock prices might be idle, but the underlying companies are still moving forward (in some cases anyway). With that in mind, here are two UK shares I’ve got my eye on this month as potential new additions to my portfolio.

A rising chocolate empire

One UK share that has been an impressive story to watch recently is Hotel Chocolat (LSE:HOTC). The firm is a vertically integrated premium chocolatier. Using cocoa grown on its own plantations in St. Lucia, Hotel Chocolat designs and producers high-quality (and in my opinion, rather tasty) chocolate treats, as well as other cocoa-based products.

For years, the business has been developing itself into a multi-channel retailer by launching new partnerships with Amazon and Ocado, as well as its own online store. At the same time, its loyalty programme, VIP.ME, has grown to over 2.1 million members. So, when its stores were forced to close for prolonged periods during lockdowns that included Easter and Mother’s Day, revenue continued to grow regardless. 

With the vaccine rollout progressing relatively quickly and the UK slowly returning to normality, I would expect any operational disruptions to cease. And with it, I expect even more growth. That’s why I’m tempted to add this company to my portfolio. However there are, as always, some risks.

The business is heavily dependent on its St. Lucian cocoa supply chain. Transporting this cargo across the Atlantic is an expensive and lengthy process that can easily be interrupted by something as unpredictable as the weather. Such disruptions could lead to product shortages, which might push customers elsewhere to get their chocolate fix.

One UK share leading the digital revolution

I think it’s fair to say that the pandemic has created quite a substantial number of operational problems. However, it has also drastically accelerated the adoption of digital transformation and remote working. These technologies are highly dependent on cloud computing, which is excellent news for Iomart (LSE:IOM).

A recent survey by the BBC interviewed 50 of the UK’s biggest employers about their plans to bring workers back to the office. Some 47 of these businesses stated they don’t plan to bring staff back to the office full-time. In other words, it doesn’t look like the current digital transformation is going to end any time soon. And with budgets beginning to open up for further investment, Iomart could be adding more clients to its roster. Needless to say, this looks like a tempting opportunity for my growth portfolio.

But, it’s worth remembering that the cloud computing industry is filled with fierce competition. This UK share has to face up against the likes of Amazon Webservices as well as Microsoft Azure. Needless to say, that’s a tough challenge. Suppose the business can’t deliver the same quality and reliability of service? In that case, it may struggle to retain and attract new customers.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat and Iomart 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.

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