As the outlook for the UK economy continues to improve, I’ve been looking for growth stocks to add to my portfolio.
Here are three UK-focused growth companies I would buy in the weeks and months ahead.
Growth stocks for May
The first company on my list of growth stocks to buy is iron ore producer Ferrexpo (LSE: FXPO).
I think infrastructure spending will drive the economic recovery over the next few months and years. This could lead to a significant increase in the demand for iron ore, a key steel component.
Ferrexpo is already profiting from rising iron ore demand. Indeed, profits at the group jumped 58% last year. Analysts reckon this trend will continue. With iron ore prices currently sitting at a record high, I’m inclined to believe them. That’s why I’d buy Ferrexpo for my portfolio of growth stocks today.
The big risk facing the business is the possibility that the iron ore price could crash from current levels. Such a decline would wipe out earnings growth and could send the stock plunging.
CMC Markets (LSE: CMCX) has booked a substantial increase in profits over the past 12 months.
Activity on the company’s trading and investment platforms has spiked as investors have tried to navigate volatile stock markets throughout the pandemic. Analysts believe the group’s net income could total £171m for its current financial year, up from £87m in 2020.
Management believes this growth will continue, and I’m inclined to agree. As CMC’s profits expand, the group can afford to invest more in marketing to attract new clients. That could drive a virtuous cycle.
These are the reasons why I’d buy the company for my portfolio of growth stocks.
However, I think two main risks could derail the company’s run of good luck, new regulations and a market sell-off. Both of these have hurt the firm in the past. When regulators changed leverage rules several years ago, CMC’s growth stumbled. It was also burnt by a sudden sell-off of the Swiss franc in 2015.
The final company I’d buy for my portfolio of growth stocks in May is Tyman (LSE: TYMN). The supplier of engineered door and window components should benefit from the rising demand for homes and home developments in the UK. Analysts are already expecting the group to report earnings growth of around 41% this year, which hints at its potential.
With profits set to hit a multi-year high, Tyman would have scope to reduce debt and reinvest in its operations. This could help support further growth in the years ahead.
These tailwinds are the primary reasons why I’d buy this company for my portfolio of growth stocks.
Having said all of the above, if the economy stumbles, Tyman’s growth may not live up to expectations. Some companies have also been reporting rapidly rising costs, and if this begins to affect Tyman, it could eat away at the firm’s margins, curbing profit growth.
Rupert Hargreaves has no position in any of the shares 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.