A Stocks and Shares ISA can be a great vehicle for maximising investment returns. But any kind of tax advantage depends on first finding the right companies to invest in.
The best opportunities are often found in places other investors aren’t looking. And the Alternative Investment Market (AIM) in the UK is quite a way off the beaten track.
Overlooked opportunities
Fundamentally, investing well comes down to one thing. It’s about seeing a company’s shares trading at a price that doesn’t accurately reflect the quality of the underlying business.
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This depends on seeing something that other investors are missing. And that’s easier to do when there aren’t as many people paying attention to the stock.
Two stocks I’ve been looking at recently are Churchill China (LSE:CHH) and FW Thorpe (LSE:TFW). In each case, I can’t find more than one analyst covering the stock.
With this type of stock, investors have to do more of the work themselves. But I think there’s a much higher chance of seeing something others aren’t if not many of them are looking.
Churchill China
Churchill China has nothing to do with Asia – it designs and manufactures tableware. The firm focuses on the hospitality industry, since that’s where repeat business tends to come from.
The stock’s down 45% since the start of the year, mostly due to end markets struggling. And there’s a risk things might continue with the government’s Budget increasing costs on businesses.
Despite this, the falling share price looks like an overreaction. The company has largely offset lower sales with operational efficiencies, resulting in stable operating profits.
Higher inventory should put the firm in a position to react quickly when demand starts to recover. When that will be I don’t know, but I think this is one to keep an eye on.
FW Thorpe
FW Thorpe manufactures industrial lighting equipment. Over the last decade, revenues have been growing at an average of 9% a year and earnings per share growth has been around 8%.
This has been driven by a wide transition to LED systems. But with this shift largely complete, there’s a risk for investors that growth might slow in the future.
There are however, some strong reasons for thinking the stock could be a good investment over the long term. The first is that it owns its intellectual property and manufacturing facilities.
This puts FW Thorpe in a strong competitive position. And at a price-to-earnings (P/E) multiple of 15, the valuation isn’t particularly demanding at the moment.
Under-the-radar stocks
Investing well is about finding quality companies that are underestimated by the market. And to reiterate, this can be easier when there are fewer investors looking at them.
Both Churchill China and FW Thorpe look like good candidates to me. I think investors should have both on their radars with a view to considering potential buying opportunities.
