With the 2021/2022 ISA deadline just a day away, I’ve been thinking about what to buy for my Stocks and Shares ISA this tax year. Buying stocks within an ISA is a smart move, in my view, as all capital gains are tax-free.
Here, I’m going to focus on two growth stocks that strike me as great ISA investments. I’d be happy to buy both for my own account today.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A top ISA pick for 2022
First up is Amazon (NASDAQ: AMZN), which is listed in the US (yes, these shares can be bought for an ISA). It’s the world’s largest e-commerce company and also the largest cloud computing business.
There are several reasons I see Amazon as a great stock for my ISA. One is that the company is well-placed to benefit from the continued growth of online shopping in the years ahead. According to Grandview Research, the global business-to-consumer e-commerce market is set to grow nearly 10% a year between now and 2028. As the largest player in the industry, Amazon should benefit.
It’s worth noting here that Amazon has seen strong growth in its third-party sales in recent years. In the last quarter of 2021, these came in at $30.3bn, representing more than 30% of total online sales. This is important because these are more profitable than regular sales.
Another reason I’m bullish is that the company looks set to generate huge growth in its cloud division, Amazon Web Services (AWS), in the years ahead. In the last quarter, sales here were up 40%. Fundsmith portfolio manager Terry Smith (who recently bought the stock for his fund) believes there could be decades of growth left.
But Amazon stock isn’t cheap. At present, the forward-looking P/E ratio here is about 70. This adds risk to the investment case. If earnings miss analysts’ estimates, the stock could underperform.
All things considered however, I think the stock’s risk/reward profile is attractive right now.
A UK stock with bags of potential
The second growth stock I want to highlight is Keywords Studios (LSE: KWS), an under-the-radar company that’s listed on the UK’s Alternative Investment Market (AIM). It provides technical services to the video games industry.
Keywords Studios has grown at a rapid pace in recent years (revenues leapt 285% between FY2016 and FY2020) and results for 2021, published last week, showed further growth. For the year, group revenues were up 37% to €512m. Meanwhile, adjusted earnings per share rose 47% to 89.2 euro cents.
Looking ahead, analysts expect the group to keep growing rapidly on the back of video games market strength. But I don’t think this growth is fully priced-in. This year, KWS shares have been caught up in the tech sell-off. As a result, they can now be snapped up around 20% below their 52-week highs, on a P/E ratio of around 30. That strikes me as good value, given the growth prospects.
Of course, there are risks to consider. One is in relation to acquisitions, as Keywords tends to make them regularly. Last year, for example, it bought six companies. But future acquisitions might not go to plan.
Overall however, I see a lot of investment appeal here. I think this growth stock could be a great ISA pick for me this year.
