The Motley Fool

These undervalued growth shares could help me build a £1m stocks and shares ISA

Image source: Getty Images.

I’m one of those investors that dreams of, and has a plan, to create a £1m ISA. To do this I want to identify undervalued growth shares that other investors are missing — shares you might think of as being hidden gems.

A growth share the could turn around

I think one such company is Driver Group (LSE: DRV). It combines a cheap valuation, decent return on capital employed (ROCE), and, before the pandemic, strong operating profit growth. It has also promoted a new chief executive internally. In other companies, this has sometimes helped lift sentiment towards a company as the strategy evolves.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Driver Group provides construction industry expertise, particularly around dispute resolution. Given a lot of countries will boost infrastructure spending post pandemic the pipeline of work could well grow.

I think the reason this company is cheap is because it hasn’t always performed brilliantly in the past. It went a few years without paying a dividend. I believe new management will want to make sure the future is brighter. To achieve this they have made some changes.  

The group has opened an office in New York and restructured the Middle East and the Asia Pacific operations to meet the changing business demands in those regions. Given how cheap the shares are on a price-to-earnings ratio of only around 11, I think the shares could help me towards a £1m ISA.

Potential for growth and strong fundamentals 

Shares in the pawnbroking business Ramsdens (LSE: RFX) also combine many of the same features as Driver Group – cheap (the P/E is six), high ROCE (around 21%), and strong operating profit growth. Pawnbrokers also haven’t closed down during the pandemic, as they are classed as essential.

This isn’t the kind of company that would get investors excited. It’s a declining industry and yet Ramsdens, alongside H&T (also a listed business), seem like overlooked investments because of this.

Looking at the fundamentals I think it’s a strong business. It’s profitable, pays a dividend, and there’s real demand for its services.

Also, as the industry shrinks, it’ll consolidate into fewer players, so Ramsdens can pick up market share. This all means it could end up being added to my portfolio at some point in the future.

A distributor boosted by e-commerce growth under lockdown 

Packaging and distribution group MacFarlane (LSE: MACF) is another business I like the look of. The Glasgow headquartered business is the largest distributor of protective packaging products and services in the UK. The business has been hit by Covid-19, but not that hard and I think is well positioned to recover. For example, in the six months to 30 June 2020, operating profit was £4,264,000 versus £4,873,000 in the corresponding period the year before.

Given the huge impact Covid-19 has had on many businesses, this doesn’t strike me as being too severe. I think MacFarlane is helped by serving growth markets like e-commerce.

The board is now restoring the dividend, which is a boost for investors. I have a lot of confidence in the business in the future. I’m likely to add it to my own portfolio. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.