We asked our freelance writers to share the top small-cap stocks they’d buy this month. Here’s what they chose:
Rupert Hargreaves: Braemar Shipping Services
Braemar Shipping Services (LSE: BMS) is an international shipbroker and shipping services provider. Its exposure to seaborne trade suggests the company is highly leveraged to the global economic recovery. Indeed, analysts reckon group earnings per share will increase 40% this fiscal year.
Based on these projections, the stock looks cheap trading at a forward price-to-earnings (P/E) multiple of 12.8.
The company’s valuation and growth potential are the reasons why I’d buy Braemar as a recovery stock in July.
That said, if the economic recovery fails to live up to expectations, Braemar may be one of the first to suffer. As such, this investment has quite a high level of risk.
Rupert Hargreaves does not own shares in Braemar Shipping Services.
Edward Sheldon: Keystone Law
My top small-cap stock is Keystone Law (LSE: KEYS). It’s an innovative, platform-based law firm that’s disrupting the UK legal industry. Last year, it won ‘Law Firm of the Year’ at The Lawyer Awards.
Keystone has generated strong revenue and profit growth in recent years and I expect it to continue doing so in the years ahead. In the short term, the company should benefit as the UK reopens and economic activity picks up. In the long run, the expansion of its platform should drive top- and bottom-line growth higher.
One thing to be aware of is that the stock’s valuation is quite high. This adds risk to the investment case. Overall, however, I think the risk/reward proposition here is attractive.
Edward Sheldon owns shares in Keystone Law
Harshil Patel: Cake Box Holdings
Cake Box Holdings (LSE:CBOX) is a specialist retailer of fresh cream cakes. It’s a franchise business and delivers most of its growth by opening new stores.
So it’s encouraging to see a strong pipeline of new locations. It currently has 157 franchised stores and another 18-24 are expected this year. It’s also trialing several kiosks with a national supermarket.
At some point, locations could become saturated and an optimum number of stores will be reached. That said, there’s currently plenty of eligible franchise applicants and potential locations to keep Cake Box growing.
Overall, Cake Box is a quality company led by entrepreneurial management. I like that it offers double-digit earnings growth and strong margins. Its balance sheet looks strong and even offers a well-covered dividend.
Harshil Patel owns shares in Cake Box Holdings.
Tom Rodgers: SCS
With home refurbishment markets booming, sofa manufacturer SCS Group (LSE:SCS) is my top small-cap stock for July 2021. The £116m market cap firm has produced operating profit growth of 30.6% in the last 12 months as sales and profits surge post-lockdown. Dividends are expected to return in force, as high as 12p per share for 2022, offering substantial future income even after a 40% rise in the share price in the year to date. A forward P/E of 11 times earnings is cheap and I see more upside for July and beyond.
Tom has no position in SCS at time of writing.
G A Chester: B.P. Marsh & Partners
Founded in 1990, and still founder-led, B.P. Marsh & Partners (LSE: BPM) is a specialist private equity investor in early stage financial services businesses. There’s higher risk with fledgling businesses, but the company has an impressive long-term record of growing its net asset value (NAV). It reported another year of growth last month, with NAV up £13m to £150m.
The stock is currently priced with a market capitalisation around £120m. In other words, at a 20% discount to NAV. Given the company’s track record of delivering strong shareholder returns (including dividends), and the growth prospects of its investee businesses, I think there’s exceptional value on offer here.
G A Chester has no position in B.P. Marsh & Partners.
Zaven Boyrazian: Bioventix
Bioventix (LSE:BVXP) is a biotech company that manufactures specialised antibodies for blood testing. It’s a niche product. But remains an essential ingredient for diagnosing almost every type of disease – including Covid-19.
The firm generates revenue from direct sales to in-vitro diagnostic companies and royalties from any product developed using its propriety material. The latter has yet to evolve into a substantial source of income. But it does provide the facility for a recurring revenue stream in the future.
Bioventix operates in a highly regulated industry. This undoubtedly adds some operational risks. Suppose the firm or any of its royalty-generating customers fail to comply with regulations. In that case, its reputation and income could be compromised. But personally, I think the potential reward is worth the risk.
Zaven Boyrazian does not own shares in Bioventix.
Roland Head: Vertu Motors
Car dealership group Vertu Motors (LSE: VTU) is one of the UK’s largest motor retailers, with brands including Bristol Street Motors. Vertu says that demand for used cars is “exceptional” at the moment. The latest update from the company revealed strong trading and triggered an upgrade to profit forecasts.
The main risk flagged by the company is that the global chip shortage will cause delays to new car deliveries. However, Vertu’s share price is covered by the value of the group’s property portfolio, and the business currently trades on just seven times forecast earnings. Brokers are also forecasting a useful 3.6% dividend yield this year.
In my view, Vertu looks like a good, cheap, small-cap stock. I recently added the shares to my portfolio.
Roland Head owns shares of Vertu Motors.
Paul Summers: SDI Group
Having multi-bagged over the last year, shares in shares in scientific product maker SDI Group (LSE: SCI) look expensive. However, I suspect they could eventually be worth a lot more thanks to an acquisition-focused growth strategy similar to that of FTSE 100 top stock Halma.
There could even be more upside in July. The company stated in May that it would exceed previous estimates on FY21 revenue and adjusted pre-tax profit (given in February). I wonder if trading since then, combined with the lifting of restrictions, will lead management to also upgrade its FY22 guidance later this month.
Paul Summers has no position in SDI Group or Halma.
Christopher Ruane: M&C Saatchi
The shares are up 156% already over the past year. For a company whose survival was in question at one point, that is impressive. But I see further possible gains ahead. The advertising market generally is buoyant. M&C Saatchi is poised to benefit from that. The company recently lifted its forecast for the year.
The company’s reputation remains tarnished, though, which could act as a dampener on growth.
Christopher Ruane does not own shares in M&C Saatchi.
Royston Wild: Begbies Traynor
The British government’s furlough schemes have helped keep a lid on insolvency rates during the pandemic. But with these financial support programmes set to end, I think now could be a good time to invest in Begbies Traynor Group (LSE: BEG).
Indeed, buying this UK share before full-year results are released on Tuesday 20 July could be a very good idea. Despite a depressed insolvency market Begbies Traynor said in May that full-year revenues would grow ahead of market expectations following a strong fourth-quarter performance. News that trading has remained robust in the new financial period (to April 2022) could help lift the small cap again following recent share price weakness.
At current prices Begbies Traynor trades on a rock-bottom forward price-to-earnings (PEG) ratio of 0.4. This provides plenty of scope for a fresh move higher.
Royston Wild does not own shares in Begbies Traynor.
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The Motley Fool UK has recommended Bioventix, Halma, and Vertu Motors. 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.