I think the best opportunities for UK investors in July might be outside the FTSE 100 and the FTSE 250. Shares in some smaller companies look very interesting to me at the moment.
The first is a firm that looks set to benefit from huge growth in its addressable market. And the second is a stock that might be too cheap after a negative reaction to its H1 results.
Cohort
A 101% gain makes Cohort (LSE:CHRT) one of the best-performing UK shares of the last year. But despite trading at a price-to-earnings (P/E) multiple of 32, I think it’s still worth looking at.
The stock has been pushed higher by news that European defence spending is set to grow significantly over the next few years. As such, the market for its products just got a lot bigger.
Over the last few years, Cohort has assembled an impressive line-up of businesses focused on defence technology. As a result, it’s in a strong position when it comes to growth.
It’s worth noting though, that a growing market might make acquisitions – which the company has relied on in the past – more challenging. And this is a risk that’s worth keeping in mind.
The company, however, is already starting to see signs of growth in its order book. And the shift to higher defence spending could well be durable, rather than temporary.
It’s hard to overstate how significant the shift in European defence spending could be for firms like Cohort. That’s why I think it’s worth considering even after climbing over 100% in a year.
Porvair
Porvair (LSE:PRV) makes filtration equipment for aircraft and life sciences applications. And with the stock falling almost 10% after its latest update, I think it’s in interesting territory.
Sales and profits came in higher than the previous year, but the rate of growth was slower than during the previous period. This was mostly due to some weak demand in the aerospace market.
In general, the supply chain for aerospace is extremely complicated. And this can be a risk for companies – like Porvair – that sell components to aircraft manufacturers.
From a long-term perspective though, I think the stock looks attractive. Regulation creates high barriers to entry and generates a significant amount of recurring revenue for the business.
Furthermore, the falling share price makes the stock unusually cheap. Based on the company’s adjusted metrics, it trades at a P/E ratio of below 15.
Analyst price targets are around 17% higher than the current level of the stock. And I agree that it looks cheap, so I think investors seeking stocks to buy in July should take a look.
Buying British
Sometimes, the best way of finding stocks to buy is to avoid overthinking and overcomplicating things. A stock market crash when everything suddenly becomes cheap is a good example.
Other times, however, looking beyond the most popular names can be very rewarding. And this is what I think of the situation with UK shares at the moment.
Both Cohort and Porvair are too small to generate much attention from analysts. But I think investors should have these stocks on their radars and consider buying them in July.
