Investing in the AIM market certainly has its risks. The companies are often much smaller than those listed on London’s main market, and they face less regulatory scrutiny. This means that AIM stocks can make heavy losses in a small period of time. Nevertheless, the AIM market can also be very lucrative if you’re discerning when picking stocks. I believe that these particular AIM stocks are the best picks.
A less risky AIM stock
Bioventix (LSE: BVXP) is the first AIM stock that I particularly like. The biotechnology company is involved in the development and supply of antibodies. It has seen tremendous growth over the past few years, with earnings increasing from £1.6m in 2014 to £6.5m last year. Recent interim results saw pre-tax profits rise 31% over the six months to the end of December 2019.
The firm also pays a strong and healthy dividend. Thanks to a highly cash-generative model, it currently yields over 2%, and has been consistently growing. In fact, the interim dividend was recently raised by 20%, despite the poor economic climate. As such, I can see Bioventix become one of the big dividend payers of the future.
My only issue with this AIM stock is its pricy valuation. Although its price-to-earnings ratio of 32 is not overly expensive in comparison to other biotechnology companies, a price-to-book ratio of 22 is significantly higher than the market average of 1.3. Even so, quality stocks such as these are going to be more expensive. With no debt, an ever-growing dividend, and profit margins of nearly 70%, I believe it’s worth every penny.
A market leader in US healthcare
Craneware (LSE: CRW) provides software to US hospitals to help them manage patient billing and costs. There are many reasons why I like this AIM stock. Firstly, it has an extremely robust balance sheet. This includes no debt, cash reserves of nearly $50m and undrawn debt facilities of $50m. As a result, the company should be able to capitalise on any market opportunities that arise. I also like the fact that the CEO and founder of the company, Keith Neilson, is also the second-largest shareholder. This demonstrates strong commitment to the firm, and management is evidently experienced.
Once again, there are problems to underline. For example, the share price was punished in 2019 when growth temporarily stalled. As a result, Craneware shares are trading at a discount of over 50% from the all-time high. But with a large number of recurring revenues, and limited impacts from the pandemic, it looks set to gain back these losses in the coming years.
All in all, I’d buy both these AIM stocks. While the AIM market can often be risky and unpredictable, both these stocks seem safer options. With both paying decent dividends already, they could also become the income stocks of the future.
Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Bioventix and Craneware. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.