Every month, we ask our freelance writers to share their top ideas for growth stocks with investors — here’s what they said for October!
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AJ Bell
What it does: AJ Bell is one of the UK’s largest investment platforms, providing administration, dealing and custody services.
By Paul Summers. Holders of investment platform giant AJ Bell (LSE: AJB) are already having a stonking year. As I type, the shares are up nearly 50%.
But I think this momentum might continue, especially if the end-of-year trading update – due 17 October – suggests clients are putting more money to work in the markets following the first cut to interest rates.
Of course, a rebound in inflation could bring out the sellers. Even if this doesn’t happen, it’s clear that the company can’t rest on its laurels in such a competitive space.
On a positive note, the valuation of 21 times FY25 earnings is still significantly below AJ Bell’s five-year average (38 times earnings).
For a company that consistently generates sky-high margins and returns on capital, that looks very reasonable to me. There’s even a forecast dividend yield of 3.2%.
Paul Summers has no position in AJ Bell.
Games Workshop
What it does: Designs and sells tabletop miniature wargames based in the Warhammer universe to hobbyists around the world.
By Zaven Boyrazian. The London Stock Exchange is filled with quality growth stocks. But Games Workshop (LSE:GAW) has put almost all of them to shame over the last 20 years. In fact, £10,000 invested back in 2004 is now worth over £350,000!
This tremendous success may sound surprising for a consumer discretionary business selling plastic miniatures. Yet the company’s addictive and expansive tabletop experiences have created a cult-like following from its hobbyist customers over the years.
Subsequently, Games Workshop’s pricing power has gone through the roof, translating into chunky profits that have continued to flow even during the recent cost of living crisis.
Past performance is not a guarantee of future success. And growth through pricing power does have its limits if sales volumes begin to suffer.
However, so long as the firm can continue to expand the worlds of Warhammer and excite its customers with new releases, this growth stock may yet continue to rise. At least, that’s what I think.
Zaven Boyrazian owns shares in Games Workshop.
Gamma Communications
What it does: Gamma is a B2B communications group providing a range of mobile and connectivity services to its customers.
By Ken Hall. Gamma Communications (LSE: GAMA) is one of those growth stocks that has caught my eye recently. The share price is up 56% year-to-date to 1,724p.
The company recently posted strong H1 results with revenue up 10% year on year to £282.5m. The part I really liked? 89% of that was recurring revenue which I love to see in a growth stock.
Gamma also has a super progressive dividend policy. In fact, the communications group has increased its dividend by 10-15% every year since its IPO in 2014.
The company is also starting to look at options for listing on the London Stock Exchange’s Main Market. That could potentially increase eyes on the stock and make it eligible for more portfolios. Nothing is a certainty, however, and an update is expected in January 2025.
With strong share price growth, a tidy dividend yield and growing revenues, Gamma is certainly one that I’m watching.
Ken Hall does not own shares in Gamma Communications.
Prudential
What it does: Prudential offers insurance and asset management products in markets where there is low penetration.
By Andrew Mackie. I must admit that the magnitude of the Prudential (LSE:PRU) share price fall over the past 18 months has taken me completely by surprise. The brunt of this decline is attributable to ongoing negative investor sentiment toward China, where the company derives 60% of its profits from.
The broader Chinese economy might be in crisis, but I am of the view this is unlikely to derail the long-term growth story here. Indeed, in its latest earnings call, management cited the emergence of green shoots across the Chinese Mainland.
Demand for Prudential’s products is growing. Health and Protection is one area I remain excited about. In its H1 results, 14 of its markets recorded Actual Premium Equivalent (APE) growth.
As a high margin business, I fully expect to see product innovation across health insurance in the coming years. And with a strong agency and bancassurance network, it is well positioned to take a large slice of a growing pie.
I am of the mindset that Prudential is yet to reach its full potential. As its share price languishes at a 12-year low, I continue to add to my position when finances allow.
Andrew Mackie owns shares in Prudential.
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage Investment Trust aims to identify, own, and support the world’s most exceptional growth companies.
By Charlie Keough. My pick for October is Scottish Mortgage Investment Trust (LSE: SMT). The stock has been gaining good momentum in 2024, rising 6.4%.
But I think it has further to go. That’s because it looks cheap, trading at a 10.3% discount to its net asset value. That essentially means I can gain access to the companies it owns for cheaper than their market rate.
Some of those names include Tesla, Amazon, and Meta. In my eyes, those are some of the most exciting companies out there. They also offer great exposure to the growing artificial intelligence industry.
The trust focuses on owning growth stocks and that comes with risk. These sorts of businesses don’t tend to fare well in high interest rate environments. Therefore, a delay in future rate cuts could see Scottish Mortgage’s share price pulled back.
But I’m a long-term investor, so I’m content with riding some short-term volatility. And as rates fall in the years ahead, that should provide the trust with further momentum.
Charlie Keough has no position in any of the shares mentioned.
