I am always on the lookout for the best stocks to buy now for my portfolio. I find these spread between the main FTSE index and the FTSE Alternative Investment Market (AIM). There is often scepticism about the AIM, as it contains usually smaller, more risky firms. It is worth noting there are some excellent businesses with large market caps and years of trading and performance on the AIM that have offered investors excellent returns in the past.
What is the Alternative Investment Market?
The AIM is a sub-market of the London Stock Exchange (LSE). It is designed to help smaller firms access capital from the public market. The AIM allows these firms to raise capital by listing on a public exchange with more regulatory flexibility than the main LSE stock market.
The AIM is often seen as a more specialised unit of the LSE, catering to smaller, riskier firms. These firms are often more speculative in nature. This is in part due to the AIM’s more relaxed regulations and listing requirements. Since launching in 1995, the AIM has helped more than 3,865 companies raise more than £115bn.
As it stands, the AIM is home to over 850 firms with a combined market capitalisation of over £100bn. When a firm seeks an initial public offering (IPO) and listing on the AIM, they do this to access more capital. Often due to their size, they are not at the level to list on a large exchange. The process for a company listing on the AIM is similar to a traditional IPO, just with less strict requirements.
One major difference I found was the role that nominee advisers, often referred to as ‘nomads’, play in the process. These nomads are seen as the regulatory system for the AIM. They advise companies pre-IPO and after. One gripe frequently raised about this relationship is that nomads are responsible for regulatory compliance, but also profit in the form of fees from the firm they list. The regulation for firms listed on the AIM is often referred to as being ‘light touch’ compared to a major index.
Best stocks to buy now #1
My first pick from the FTSE AIM is growth stock AB Dynamics (LSE:ABDP). I believe it is a perfect example of an AIM success story. AB is involved in the automobile industry. It provides testing equipment and advanced measurement services to car producers in the UK and overseas.
Launched in 1982, AB Dynamics is not a new up-and-coming stock. In fact, it has continued to grow on a slow and steady basis. This is one of the main aspects I like about it. It floated on the AIM in 2013 for 115p. It reached all-time highs of 2,750p in November 2019. If I had invested at IPO stage, I would have seen a return of 2,291% at the shares’ highest levels.
As I write, shares are trading for 1,860p per share. At this time last year, shares were trading for 2,140p. This decrease in share price does not worry me. In fact, I see it as an opportunity to buy cheaper shares. The dip is attributed to the pandemic and the lack of new cars being produced in recent times. Economic pressures have also affected the automobile industry. I believe as the economic reopening continues, AB Dynamics could benefit and its share price rise closer to previous highs.
Reviewing past performance, AB has reported year-on-year revenue and gross profit growth for the past four years. I understand past performance is not a guarantee for the future but I use it as a gauge when researching the best stocks to buy now.
The risks with AB Dynamics are closely linked to the economy, the pandemic, and reopening. If new car production continues to falter, AB Dynamics could see demand for its services reduced. This will affect its performance and financials, as well as investor sentiment, and its share price could suffer.
Overall, I would consider adding AB Dynamics shares to my portfolio right now. The global car industry is experiencing production issues, but I feel this is a short to medium term issue. I invest for the long term. I expect to see AB prosper longer term, offering me a good return.
Best stocks to buy now #2
The next FTSE AIM stock I like is GlobalData (LSE:DATA). Global is a data and analytics consulting firm with a global footprint and reach. Launched in 1999, I would argue it moved into an innovative sector before that sector really took off. After all, data and analytics wasn’t really a prominent concept in 1999, compared to the role data plays in our lives currently.
GlobalData listed on the FTSE AIM back in 2009 for 89p. As I write, shares are trading for 1390p. If I had invested when it was first listed, I would have seen a return of 1,461%! Shares have continued on an upward trajectory since its listing and are currently trading just over pre-crash levels. With a market-cap of over £1.4bn, it could soon join the main FTSE index. It is one of the largest listed firms on the FTSE AIM based on market cap.
There are a few reasons I class GlobalData as one of my best stocks to buy now on the FTSE AIM. Firstly, like AB Dynamics, Global has a good track record of performance. It has seen revenue and gross profit grow year on year for the past four years. In addition to that, it regularly acquires businesses to boost its profile and offering. Acquisitions excite me as a potential investor as it shows willingness to grow, which could increase my returns.
There are risks with GlobalData, however. Competition is rife in the data and analytics sector. There are several well known names that operate in the space, which could affect its market share. These household names could affect performance and in turn, financials too. In addition, acquisitions don’t always work out. Sometimes, firms can overpay for the business they are buying and this can affect the balance sheet and the share price.
Overall, I would add GlobalData shares to my portfolio right now. I expect its growth journey to continue, especially as data and analytics services are in higher demand than ever.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended AB Dynamics. 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.