Just released: our 3 top small-cap stocks to buy in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a portfolio of at least 15 small-cap stocks.

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The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

Premium content from Motley Fool Hidden Winners UK

Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

“Best Buys Now” Pick #1:

Treatt (LSE:TET)

Why we like it: Treatt (LSE: TET) is a speciality chemicals business that focuses on providing ingredients for customers primarily in the food & beverage space. Since becoming CEO in 2012, long-time Treatt employee Daemmon Reeve and the board have successfully repositioned the company from being a low-margin supplier of commoditised bulk chemicals into the relatively-higher-margin player it is today. They’ve done this by moving up the value-added chain and working more closely with customers to supply specialised ingredients tailor-made for their products.

“Treatt’s performance over the past few years has been impressive. The company’s newly upgraded UK HQ and expanded facility in Florida give it expanded and upgraded lab, production, and warehousing facilities, which management believes will provide a base for continued growth. With a large and growing end market to target, a proven management team at the helm, and an attractive strategy to continue working its way up the value-added chain, we believe Treatt’s long-term potential is exciting.”

Why we like it now:

The full-year trading update Treatt released last week was a positive one. Volumes are still constrained but against a tough macroeconomic backdrop management are expecting to deliver a 3% uptick in constant currency revenue (5% actual) with pre-tax profits recovering by roughly 11%. Cash generation also appears strong as net debt is expected to halve to a very, very manageable £10.5m.

With its investment programme complete and this update suggesting a rocky year of internally and externally-induced issues in 2022 is behind it, we think Treatt can now get back on track with its long-term strategy to grow market share in its core capabilities, extend into additional categories, and continue its march up the value-add chain. At just under 25 times times trailing earnings Treatt isn’t dirt-cheap but for a quality, growing company with plenty of defensive characteristics we think it’s worth taking a look at in October.

“Best Buys Now” Pick #2:

Redacted

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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.

The Motley Fool UK has recommended Treatt plc.

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