Every month, we ask our freelance writers to share their top ideas for growth stocks to buy with investors — here’s what they said for December!
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FRP Advisory Group
What it does: FRP provides restructuring services and other financial help for distressed companies across the UK.
By Royston Wild. The British economy looks set for a prolonged period of turmoil. In recent days Handelsbank downgraded its already-gloomy forecasts for zero growth in 2023. It now expects “a full-blown recession” with a 1.3% contraction in national GDP.
Against this backcloth, I think buying counter-cyclical shares could be a good way for me to protect my wealth. I’d do this by building a position in FRP Advisory Group (LSE:FRP). In fact, City analysts expect earnings to grow here each year through to 2024.
FRP provides a range of financial services for businesses in distress. And its latest trading update showed “a continued growth in revenues and profits” between May and October.
The AIM-listed company has plenty of financial headroom to boost earnings through acquisitions, too. It carried out a £39m share placing over the summer designed for it to target further bolt-on buys. This could deliver significant long-term benefits.
Royston Wild does not own shares in FRP Advisory Group.
What it does: Volex is a manufacturer of power cords and cables with a focus on high-growth industries.
By Edward Sheldon, CFA. There are several reasons I’m bullish on Volex (LSE: VLX) right now. One is that the company is growing at a healthy rate. For the 26 weeks to 2 October, the group posted year-on-year revenue growth of 22.1% along with 14.1% growth in underlying profit before tax. Results were boosted by 53% organic revenue growth in its electric vehicle division.
Another reason is that management has ‘skin in the game’. Both executive xhairman Nat Rothschild and COO John Molloy own a ton of Volex stock. So, it’s in their interests to get revenues, profits, and the share price up.
Finally, the stock is dirt cheap. With analysts forecasting earnings per share of $0.27 for the year ending 5 April 2023, the forward-looking P/E ratio is only about 13.
Risks here include debt levels, which have risen on the back of acquisitions, and excess inventory issues. I like the risk/reward proposition at current levels, however.
Edward Sheldon owns shares in Volex.
What it does: Hargreaves Lansdown operates an investor services in the UK, such as managed funds and support services.
By Gabriel McKeown. Despite Hargreaves Lansdown‘s (LSE: HL) poor share-price performance over the last year, the strong underlying fundamentals are certainly appealing. This is a company with very high-profit margins, an impressive return on invested capital (ROCE), and almost zero debt.
Additionally, after falling nearly 40% in 2022 alone, it now has a P/E ratio of just 16, which is fairly low for a growth company. This appears to be a prime example of where the market begins to overreact in the short term, and the price disconnects from the fundamentals.
Furthermore, Hargreaves offers a dividend yield of nearly 5% and has been paying out for the last 15 years. When the income-generating benefits are combined with double-digit earnings forecasts for 2023, it certainly appears to be an appealing investment opportunity. Therefore I think this is a great high-quality stock to buy in December.
Gabriel McKeown does own shares in Hargreaves Lansdown.
What it does: Keywords is a leader in video game development services providing critical talent to AAA game studios worldwide.
By Zaven Boyrazian. Keywords Studios (LSE:KWS) is a video game development services business. It helps some of the largest studios in the world create their blockbuster titles by providing the unique skilled talent required.
The firm’s ecosystem of services covers every aspect of the development cycle from conceptualisation to commercialisation. The list includes 3D modelling, 2D art, audio design, programming, quality assurance, player testing, and translation services, among others.
With the video game industry expanding rapidly, Keywords has had little trouble securing growth opportunities. By the end of 2022, management expects revenue and pre-tax profits to be 32% and 28% higher than a year ago, respectively.
Needless to say, that’s some fairly impressive growth rates. The group is a highly acquisitive enterprise which does introduce risks. After all, a poorly executed buyout could compromise the firm’s financial health and growth rates. But given its track record of success to date, that’s a risk worth taking for my portfolio.
Zaven Boyrazian owns shares in Keywords Studios.
Scottish Mortgage Investment Trust
What it does: Managed by Baille Gifford, Scottish Mortgage Investment Trust is one of the UK’s most popular funds with total assets of almost £14bn.
By Paul Summers: As I type, the share price of FTSE 100 member Scottish Mortgage Investment Trust (LSE: SMT) is down over 40% in 2022. To a point, this makes perfect sense. SMT looks for ‘disruptive’ growth companies – just the sort of stocks that are likely to be firmly out of favour as interest rates rise.
As a long-term Fool, however, this short-term ‘pain’ suits me fine. We can be sure that investors’ risk appetite will return eventually. And when it does, I want to be owning game-changing firms like Moderna, ASML and Tesla. So,what better time to buy this low-fee (0.32%) active fund than when it trades at a discount to net asset value? The cherry on top is that SMT also gives me exposure to highly-promising private companies that might become the titans of tomorrow.
I will continue adding to my stake in December and beyond.
Paul Summers owns shares in Scottish Mortgage Investment Trust.
What it does: ITV is a UK broadcaster that also produces content and offers production facilities for third parties
But there is also a growth story here. The company continues to do well selling advertising on terrestrial television while scaling up its digital offering. Over the long term, I think that could help it continue to grow advertising revenues. In the coming couple of years, though, they may suffer as part of a wider marketing downturn.
ITV’s facilities and expertise in making content strike me as a growth driver at a time when demand for drama shows continues to outstrip demand. In years to come I think that could help power both revenues and profits.
Yet the ITV share price remains beaten down. With the shares 30% lower than a year ago, the price-to-earnings ratio is now below 7. If I had spare cash to invest, I would buy more ITV stock for my portfolio in December.
Christopher Ruane owns shares in ITV.
What it does: Integrafin owns a leading digital investment platform, called Transact, serving UK financial advisers and their clients.
By G A Chester. The revenue Integrafin Holdings (LSE: IHP) generates from Transact is linked to the market value of funds on the platform. This value is driven by fund inflows/outflows and market movements.
For the year to 30 September, Integrafin continued its long record of attracting net inflows. A new £4.4bn came in. However, negative market movements of £6.3bn saw the value of funds on the platform fall 4% to £50.1bn.
Despite this, Integrafin expects to report an 8% increase in revenue when it announces its full results on 14 December. And continuing strong numbers of new advisors and clients joining the platform provide a solid basis for ongoing growth. Substantial investment is also being made to efficiently scale the business for enhanced future profitability.
There’s a risk volatility in financial markets could further impact investor sentiment (Integrafin’s shares are down 50% over the last year), but I see exciting long-term growth prospects here.
G A Chester does not own shares in Integrafin.
What it does: Keywords is an art, audio, development, marketing, translation, testing and player support service outsourcer for video game studios and publishers.
By James J. McCombie: Keywords Studios (LSE: KWS) offers a unique way to get exposure to the growing video games industry. It is not exposed to the risk of a game flopping as it takes payment for its services before release. Its business model has delivered handsomely on the top line. Full-year revenue for 2022 is expected to be at least €675m, which would be 32% year-on-year growth and a stonking 346% over five years.
The company is profitable, and its net income has increased over the years, although it is more volatile than revenues. To keep growing, the company needs a steady pipeline of new games. There is some concern that after a recent splurge to capture the attention of eyeballs during the pandemic years, a lot of players are now focusing on cash flow and return on investment, which might see Keywords revenue rise start to slow.
James J. McCombie does not own shares in Keywords Studios.
John Choong: Wise
What it does: Wise is one of London’s biggest fintech companies. It mainly facilitates the transfer of money across international borders.
By John Choong. When buying growth stocks, I look for solid double-digit growth in a company’s top and bottom lines. Wise (LSE: WISE) fits the bill perfectly as its past couple of quarters have seen strong revenue and income growth. I’m also a huge fan of the firm’s ability to acquire customers generously despite having to increase prices in the ongoing economic backdrop.
Additionally, the firm’s plans to venture into new markets is something that excites me tremendously as it continues to take market share from giants such as PayPal. Moreover, the company’s balance sheet indicates that it’s well equipped to continue expanding without too much hinderance given its healthy debt-to-equity ratio of 19.2%. Most importantly, its free cash flow continues to grow at a rapid pace.
Nonetheless, it’s worth noting that Barclays has an average price target of £5.50 on the stock, which is lower than the Wise’s current share price. This may indicate that the stock is overvalued and is something I’m closely monitoring.
John Choong has no position in Wise.