In most cases, young businesses fail, even the ones that manage to make it to an IPO. But every so often, a diamond in the rough emerges. And providing that investors are accurate in their assessment, investing in the early days of a growth story can lead to explosive wealth generation.

Disrupting banks with fintech

The list of fintech companies is seemingly endless. And plenty are residing within penny stock territory. While most seem to be focused on digital payment solutions, Argentex (LSE:AGFX) targets a niche and underserved market – corporate foreign exchange.

The group is a broker for trading spot, forward, and options contracts. These are specialised financial derivatives often used by businesses with international operations to mitigate the impact of fluctuating currency exchange rates.

Traditionally, the banking sector has provided such services, and continue to control an estimated 85% of the global market share today. The problem is these services are prohibitively expensive for smaller companies. That’s where Argentex steps in.

Instead of following the usual fee structure, the group makes its money through the bid-ask spread on each transaction. As a reminder, that’s the difference between an asset’s buying and selling price.

While this difference is often small, it starts to add up when scaled by thousands of transactions each month. And with management now starting to encroach on new market opportunities with its own alternative banking platform, investors could be looking at the start of a disruptive journey for the global corporate banking industry.

One of the best penny stocks to buy?

Looking at Argentex’s latest results, the group continues to fire on all cylinders. In 2022, total revenue grew by 54% year on year, reaching a record £50.4m. This was driven by a combination of 187 additional clients using its platform during the period, as well as a 45% increase in average revenue per client.

Operating profits were down for the year. However, upon closer inspection, this appears to be self-inflicted. Management is currently busy increasing headcount to accelerate the development of its alternative banking platform as well as its expansion into the Australian and European markets.

In the meantime, the balance sheet remains debt-free and flush with cash. With that in mind, there don’t appear to be any financial restraints holding the company back. However, there are, of course, risks.

The alternative banking platform is still a relatively new addition to the group’s revenue stream. And consequently, almost all of this penny stock’s income stems from forex trading activity. This is notoriously cyclical.

During periods of economic instability, volatility within exchange rates ramps up demand for Argentex’s services. But when stability returns, this could flip, making it increasingly difficult for the group to maintain a rapid growth profile.

Having said that, in the long run, demand for currency exchange risk management isn’t likely to disappear anytime soon. And with its valuation sitting at just 12 times forward earnings, Argentex looks like a bargain opportunity to tap into a disruptive growth opportunity.

The post A dirt-cheap ‘almost’ penny stock to buy for the fintech revolution appeared first on The Motley Fool UK.

For example, suppose an investor allocates £500 a month to their portfolio and matches the performance of the FTSE 100?

Assuming the lead index continues to deliver its average historical returns, reaching a million would theoretically take 34 years. And it may take even longer if the stock market decides to throw a poorly-timed tantrum.

Fortunately, this timeline can be shortened through prudent stock picking. Instead of mimicking the market, investors can carefully select individual high-quality businesses to pursue superior long-term returns.

Even if the annual gain is only boosted by an extra 3%, that’s enough to cut seven years from the waiting time!

With that in mind, here are three UK shares that could potentially put investors on the path to higher long-term returns.

The rise of digital marketing

dotDigital (LSE:DOTD) is one of many UK shares to have received enormous love during the pandemic. With e-commerce taking off like a rocket, the digital marketing platform saw a massive uptick in demand.

Since then, the share price has been solidly slashed. This isn’t entirely surprising. Given the far weaker economic conditions, the firm’s growth has tumbled from high double-digits to single-digit territory.

And yet, management continues to increase the average revenue per customer. It currently stands at £1,573 per month versus £1,083 in 2020. Recurring revenues now represent 95% of the top-line income, the balance sheet looks robust, and the group’s international expansion is starting to make significant strides.

In other words, dotDigital looks perfectly positioned to thrive once economic conditions improve. Even more so now that it’s introduced AI-powered campaign creation to its platform.

But the company is certainly not without its risks. Digital marketing is a highly competitive arena, with far larger companies to fend off.

If the worst-case scenario occurs and the UK falls into a recession, growth will likely slow even further. However, with this situation seeming less and less likely, along with a fairly reasonable valuation, dotDigital could be one of many UK shares primed for a comeback.

The new era of finance

A common challenge for international corporations is the risks introduced by fluctuating foreign exchange rates. And while traditionally these were hedged with the help of corporate banks, fintech firms like Alpha Group International (LSE:ALPH) and Argentex (LSE:AGFX) are rapidly becoming popular alternatives.

The firms are a little different. But they’re both involved in low-cost currency hedging as well as alternative banking solutions.

Neither business is struggling to find customers, especially among small- and medium-sized businesses that continue to be underserved by traditional financial institutions. As a result, the average compounded revenue growth rate over the last five years has been a spectacular 33.2% and 21.1% respectively.

Much like digital marketing, fintech is filled with competing solutions. Even some of the services these two firms provide are starting to overlap, introducing additional rivalry.

Moreover, fintech companies are having to navigate the labyrinth of regulatory compliance, and any breach could introduce severe legal and reputational backlash.

Nevertheless, this continues to be an exciting growth story in an industry ripe for disruption.

The post Top stocks for 2023! 3 UK shares to target a million appeared first on The Motley Fool UK.

Anglo American

What it does: Anglo American is a global mining company, with operations in 15 countries.

By Andrew Mackie. The Anglo American (LSE: AAL) share price saw some big swings throughout 2022. However, this is part of the course when investing in mining stocks.

Although the near-term economic outlook might weigh down on its share price, in the medium and long term I am very bullish on the company prospects. Decarbonisation of the world’s energy and transport system is extremely metal- and minerals-intensive.

As the pace of the transition accelerates throughout this decade, the demand for many of its metals will soar. However, what is not been currently reflected in the prices of these metals is supply-side constraints. Years of under investment across huge swathes of the natural resources sector means that we are likely to face a supply cliff.

Exacerbating the problem is a skills gap in the mining space. Finding suitably qualified exploration geologists is becoming increasingly difficult due to a range of factors. It’s little wonder, therefore, that I bought some of it shares for my portfolio last month.

Andrew Mackie owns shares in Anglo American.

Apple

What it does: The company designs and manufactures consumer electronic devices. Its most popular product is the iPhone.

By Stephen Wright. I don’t feel the need to overcomplicate things right now. That’s why I’ve been buying Apple (NASDAQ:AAPL) shares.

The company has all the features I look for in a stock to invest in. It’s easy to understand, it produces a lot of cash, and it doesn’t take much ongoing investment to run.

Apple has two sources of revenue. Its hardware operations involve selling products to consumers and its services business makes money by taking a cut of sales from its App store.

The business is also well protected from competition. When users join Apple’s ecosystem by buying its products, it becomes difficult to switch. 

With the stock down 37% over the last 12 months, I think this is a great time to be investing in Apple shares. That’s why I’ve been buying the stock for my portfolio.

Stephen Wright owns shares in Apple.

Argentex

What it does: Argentex offers foreign exchange services to corporate clients and individuals, providing bespoke advice and strategies.

By Roland Head. Argentex (LSE: AGFX) issued a trading statement upgrading its profit guidance for 2022 on 12 December. Shortly after this, I bought the shares.

I’d been watching this small cap for a while, as it looked cheap to me for a company with 25%+ operating margins and plenty of cash. Other attractions included owner management (the CEO owns 12%) and a useful dividend.

However, growth faltered in 2021. I was keen to see if Argentex could return to growth before committing my own funds.

December’s update reassured me that the company’s investment in new technology and recruitment is starting to deliver results. Profits rose by 26% during the first half of last year. I think there’s more to come.

One caveat is that this is a competitive sector. There’s no guarantee that Argentex will be a long-term winner.

Right now, though, I think the shares look reasonably priced with good growth potential.

Roland Head owns shares in Argentex.

Ashtead

What it does: Ashtead is an international construction equipment rental company that operates in the US, the UK, and Canada.

By Edward Sheldon, CFA. I bought Ashtead (LSE: AHT) shares for several reasons.

The main reason is that I expect the company to benefit from supply chain onshoring in the US. Right now, the US is undergoing a huge reshoring initiative to eliminate supply chain vulnerabilities. This is likely to create high demand for construction equipment in the years ahead.

Another reason is that I was impressed with the company’s interim results. For the half year to 31 October, Ashtead delivered revenue growth of 26%. On the back of these strong H1 results, it raised its guidance for the year and lifted its interim dividend by 20%.

Finally, the valuation looked reasonable to me. When I bought the shares, the P/E ratio was around 16.5.

As for the risks here, one I’ll be keeping an eye on is the state of the US economy. If the US was to fall into a deep recession and construction came to a halt, Ashtead could suffer.

I think there’s a decent chance this stock can deliver solid returns over the medium to long term, however.

Edward Sheldon owns shares in Ashtead 

Games Workshop

What it does: Games Workshop designs, manufactures, and sells fantasy miniatures for its Warhammer tabletop gaming experience.

By Zaven Boyrazian. Games Workshop is the mastermind behind the world’s most popular tabletop franchise, Warhammer. It’s undoubtedly a consumer-discretionary business. Yet, despite the pressure from rising inflation and a fall in consumer spending, revenue is proving remarkably resistant.

Looking at the latest trading update, pre-tax profits are expected to fall by around 6% versus 2021. However, upon closer inspection, this decline originates from the timing of various licensing contracts rather than a drop in product demand. In other words, core cash flow is still expanding. So much so that management has just raised dividends by a whopping 68%!

Robust fundamentals combined with a depressed share price often breed buying opportunities. And while 2023 may be a tough year if the UK falls into a deep recession, this business’s long-term potential remains immense. At least, that’s what I think. And it’s why I added this business to my portfolio in December.

Zaven Boyrazian owns shares in Games Workshop.

Li Auto

What it does: Li Auto is a leading Chinese electric vehicle manufacturer founded in 2015 and headquartered in Beijing.

By Dr James Fox. I have limited exposure to growth stocks, so when I buy one, it must be for a very good reason.

Li Auto (NASDAQ:LI) is among the most promising electric vehicle (EV) outfits. EVs are clearly part of the future, but my interest in Li starts with its attractive valuation.

The Beijing-based firm is cheaper than its US peers according to a host of metrics, and it may be the first Chinese EV company to turn a profit this year.

China’s zero-Covid policy caused problems for Li and its peers in 2022. Lockdowns and restrictions put the supply chain under pressure and demand started to wane.

However, early data suggests the firm outperformed its peers in the latter half of 2022 and should achieve faster top line expansion and positive normalized earnings in 2023.

I’m predicting a stellar year for the firm, buoyed on China’s reopening and the outstandingly impressive L9 SUV – check it out.

James Fox owns shares in Li Auto.

Moderna

What it does: Moderna is an American biotechnology company that focuses on RNA therapeutics.

By John Choong. Although Moderna (NASDAQ:MRNA) has come substantially off its pandemic highs, I believe its current levels are rather lucrative.

Its main revenue stream of Covid vaccines may be waning, which has caused many analysts alike to downgrade the stock. However, its pipeline of shots for flu and respiratory syncytial viruses could provide some support to its top and bottom lines in the short to medium term.

What I’m invested in, though, is its venture into vaccine treatments for cancer. The company’s most recent phase two trials for skin cancer showed plenty of promise and is set to move to phase three later this year. If successful, analysts are suggesting that Moderna could end up becoming a money-spinner as its cancer vaccine could generate up to $1bn in revenue a year, and $5bn if applications go beyond melanoma.

So, with a price-to-earnings (P/E) ratio of 6.6, price-to-earnings growth (PEG) ratio of 0.1, and enterprise value-to-EBITDA of 4.4, I’ve been snapping up its shares.

John Choong has positions in Moderna.

Rightmove

What it does: Rightmove operates the UK’s most popular online property portal and largest property marketplace.

By Ben McPoland. Rightmove (LSE:RMV) shares are down 25% over the last 12 months. That’s understandable given the fact that higher interest rates have made mortgages more expensive and reduced demand in the housing market. These risks could send the stock down further over the short-to-medium term.

However, I’m taking a longer view with my purchase of Rightmove stock. This is a company that commands an 84% share of its market. It is extremely profitable, with an asset-light business model generating an operating margin above 73%.

Righmove also has no significant debt, which is important as interest rates march higher. Plus, the stock now has a forward price-to-earnings (P/E) ratio of 22. That’s the cheapest it’s been in many years.

I don’t see people’s desire to hunt down their dream home changing. And I expect online property browsing to only increase in the future, benefiting the company’s platform for many more years.

Ben McPoland owns shares in Rightmove

Vodafone

What it does: Vodafone operates telecoms networks, and provides services such as mobile and broadband across Europe and Africa.

By Christopher Ruane. I had been thinking about buying shares in telecoms giant Vodafone (LSE: VOD) for a while. So what made me finally decide to make a move?

The underlying investment case has not really changed, in my view. As a leading operator in many markets across Europe and Africa, Vodafone is poised to benefit from ongoing growth in demand for services like broadband and mobile data. Set against that is the company’s large debt pile, which risks eating into the firm’s profitability.

What has changed, though, is the share price. After the shares fell more than a fifth in the past year, Vodafone now offers a dividend yield of over 8%. There are some other FTSE 100 companies offering such a high yield – but not many.

With a strong brand, large customer base and resilient demand for telecoms services, I am hoping that Vodafone will be a rewarding investment for me.

Christopher Ruane owns shares in Vodafone.

The post 9 shares that Fools have been buying! appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Premier Miton

What it does: Premier Miton is a UK fund manager that provides a wide range of actively managed funds and investment trusts.

By Roland Head. Premier Miton (LSE: PMI) has had a tough year, but I think it could be the right time for me to buy shares in this well-respected firm.

It’s normal to see fund managers’ profits fall when markets slump. This is because their fee income is based on the value of assets under management.

However, while Premier’s share price has fallen by nearly 50% in 2022, pre-tax profit for the year to 30 September only fell by 15%. That’s left the stock looking cheap to me, trading on 13 times forecast earnings, with a dividend yield of 8.5%.

There’s obviously a risk that the dividend could be cut if market conditions worsen next year. However, I think it’s more likely that conditions will stabilise and the payout will be held.

In my view, this is a good opportunity to buy into this cyclical business. I think the shares could do well from current levels.

Roland Head does not own shares in Premier Miton.

Bioventix 

What it does: Bioventix produces monoclonal antibodies to sell to customers for use in commercial and research applications.  

By James J. McCombie: Bioventix (LSE: BVXP) is a £192m biotech stock that trades on the Alternative Investment Market (AIM). This small-cap biotech stock has growing sales and turns a profit. In fact, it’s been profitable for years and its bottom-line number is increasing. It generates plenty of free cash flow and pays a steadily increasing dividend. 

The stock is a little expensive compared to its industry and the wider market, trading at a P/E ratio of 23. However, for a company with increasing sales, a massive 79% operating margin, and consistent earnings power, I think it’s a price worth paying for the quality of the business. 

But new product development is a long and relatively expensive process to get all the way to approval. There is always a chance, as with all biotech and research-heavy companies, that what Bioventix risks today will not be rewarded in the future. 

James J. McCombie does not own shares in Bioventix 

On the Beach

What it does: On the Beach Group is a Manchester-based online retailer of beach holidays.

By Paul Summers. As a shareholder of On the Beach (LSE: OTB), I can’t say that 2022 has been all sunshine and fun. Notwithstanding this, I’m beginning to think the worst might be over.

Recent trading has been encouraging. Revenue for FY22 jumped 373% on the previous year and is back to pre-Covid levels. If this continues, I expect profit to seriously recover in 2023, especially as this small-cap already has a 20% share of its niche market.

That said, nothing can be guaranteed. Clearly, the consumer slowdown could delay a sustained rise in earnings and, ultimately, the share price.

I think the valuation of 12 times earnings takes account of this. Moreover, On the Beach’s finances look stable, helped by the fact that its online-only model means it can cut marketing spend quickly and painlessly if needed.

I’m considering topping up my position in this small-cap stock.

Paul Summers owns shares in On the Beach.

Mulberry

What it does: Mulberry is a British fashion company best known for its luxury leather goods, particularly women’s handbags.

By John Choong. Luxury stocks tend to hold up rather well during a recession. This is because of the Veblen effect, which is a phenomenon where consumers perceive higher prices to constitute higher value. As such, I’m expecting Mulberry (LSE: MUL) to benefit from this.

Its share price may be down over 20% this year, but recent developments surrounding its key market, China could spell strength for the luxury brand. After all, analysts at Shore Capital noted that Mulberry is “well positioned to deliver on the Asian-focused geographical expansion and potential product extension strategy”.

Currently trading at a lucrative PEG ratio of 0.1, the luxury stock screams a bargain. This is especially the case when I consider the stock’s upside potential. As the world’s most affluent consumers wait to spend big in the coming months, it’s not difficult to see why Barclays has a price target for the stock at £3.40. This presents me with a 36% potential upside if I were to buy its shares today, and is something I’m deeply considering.

John Choong has no position in any of the shares mentioned.

Argentex

What it does: Argentex is a financial services company that provides foreign exchange (FX) services to institutions, corporates, and private individuals.

By Edward Sheldon, CFA. Argentex (LSE: AGFX) appears to have a lot of momentum right now.

In November, the company posted strong results for the six months to 30 September, with revenue coming in at £27.4m, up 75% year on year, and adjusted operating profit amounting to £7.3m, up 55% year on year.

Then, in December, the company told investors it expected revenue and earnings for 2022 to be ahead of market expectations.

I don’t think this strong momentum is factored into the share price, however. Currently, the stock has a relatively low valuation.

Going forward, revenue growth could moderate. In recent months, FX volatility has been elevated and the company will have benefitted from this.

I think the company has the potential to keep growing at a healthy rate though. And at the current valuation, I see a lot of appeal in the small-cap stock.

Edward Sheldon has no position in Argentex.

Gateley Holdings 

What it does: Gateley Holdings is an AIM-listed commercial law firm with 15 offices in Britain and one in Dubai. 

By Royston Wild. I think Gateley Holdings (LSE:GTLY) could be a top value stock for me to buy in January. The company is tipped to enjoy an 8% rise in annual earnings this fiscal year (which ends in April 2023). This leaves it trading on a forward price-to-earnings (P/E) ratio of 11 times. 

On top of this, the company offers up a tasty 5.5% dividend yield. 

Gateley provides a range of legal and professional services in sectors such as banking and financial services, property, and pensions and benefits. And right now the business (which has a market cap of £220m) is trading extremely strongly. 

Latest financials in November showed revenues up 22% in the six months to October and an 11% rise in underlying adjusted pre-tax profit.  

I’m expecting Gateley to announce that trading has remained robust when it next updates the market on Wednesday, 18 January. This could lead to fresh share price gains. 

Royston Wild does not own shares in Gateley Holdings. 

Anpario

What it does: Anpario designs and manufactures specialised animal feed additives to improve livestock healthcare.

By Zaven Boyrazian. Despite the rising popularity of plant-based foods, meat and fish protein consumption continues to surge. And that’s driven quite a bit of demand for small-cap stock Anpario (LSE:ANP).

The business is a manufacturer of specialised animal feed healthcare additives. Farmers blend Anpario’s products into their livestock’s food to achieve superior health, toxin management, hygiene, and insect control. The result is a better quality of life for the animals, reduced medical expenses for farmers, and higher quality protein for consumers.

The business has recently completed an expansion of its UK factory, drastically improving its production capacity. The timing is impeccable, given recent regulatory changes in China have banned a significant chunk of its competitors’ products, creating a window of opportunity.

The firm’s reliance on a single factory does introduce some risk. After all, any prolonged disruption at the facility could result in customer orders being fulfilled by rivals. But given the importance of its industry, this risk seems worthy of the potential long-term rewards.

Zaven Boyrazian does not own shares in Anpario.

The post Best British small-cap stocks to buy for January appeared first on The Motley Fool UK.

My attraction to the AIM stock market

My recent attraction to the AIM market stems from my difficulty in finding capital growth at a cheap price anywhere else. The main market is so efficient that it is nigh on impossible to find undervalued shares that other analysts may have missed. If there are any companies out there with good growth prospects there is a good chance that I will find them on AIM.

One such company is specialist foreign exchange provider Argentex (LSE:AGFX), an AIM stock that I believe can provide me with high growth potential at a cheap price.

A penny stock with capital growth potential

The company is a simple business for modern times. It helps businesses and wealthy individuals handle their foreign exchange requirements. It is a disrupter aiming to take market share away from the banks by offering a better, cheaper service. This represents fertile ground for sustained growth.

It has grown its revenue and profit every year since it floated a decade ago, demonstrating resilience and sustainability. Even during times of economic turmoil like the pandemic its customer demand remained consistent.

Not only is the company profitable, it is also debt-free with £23m of net cash at the end of September 2021.  

In addition, Argentex continues to expand internationally despite the choppy market environment. The strategy appears to be working. Client numbers increased by 20% year on year according to its most recent trading update.

Analysts expect earnings to grow more than 35% this year and the next. Yet, despite the ambitious forecasts, the shares trade on a multiple of just 11 times. This looks cheap to me compared with its peer, JIM Jarvis Securities, which trades on a multiple of 16 times.

Are the shares trading below fair value?

Just a year ago, Argentex shares were trading at around 125p, but they have since fallen to under 80p. I am surprised the stock has fallen out of favour with investors. It seems an unfair price for a company with continued profit margin and revenue growth.

Even City analysts believe the stock is currently trading at 40% below fair value, with the view that a price of £1.32 better reflects the stock’s prospects. I am inclined to agree.

My ISA portfolio is relatively volatile currently, and there seems no end to this anytime soon. The knock-on effect of this volatility has been a rather brutal decline to my fund value. Many of the large-cap technology growth stocks that generated the greatest capital returns in my portfolio in the recent past have been some of my worst performers this year.

I have had to look further afield for the prospect of growth, and Argentex is just one example of an AIM company with incredible growth prospects and a modest price.

Based on its stellar future prospects, the shares have the potential to double in price over the next year alone. This is why I may buy this month before I miss the dip.

The post A FTSE AIM stock I’d add to my Stocks & Shares ISA in July appeared first on The Motley Fool UK.

A word of warning – AIM is more lightly regulated than the main market and also contains some high-risk speculative stocks. Careful research is needed to find the hidden gems, but I’ve found it’s worth the effort. Here are seven AIM market stocks that I’d consider buying for my portfolio today.

Safer profits from property

My first choice is AIM property developer Watkin Jones (LSE: WJG). This company specialises in building student accommodation and apartment blocks, which it then sells to big rental landlords. New buildings are often pre-sold before they’re built, so the risk of losing money on completed projects is low.

The main fear I have is that this business could face much tougher competition in the future. Purpose-built rental accommodation is a growing market with some big money behind it. But Watkin Jones is an established player with a good reputation. I think it should continue to do well.

The shares have slumped recently, and this stock now offers one of the higher dividend yields on the AIM market, at around 3.9%. I think Watkin Jones looks good value at current levels.

A potential bargain

My second pick is tableware and home fragrance group Portmeirion (LSE: PMP). This business grew out of a gift shop in North Wales, but today owns brands including Spode, Royal Worcester and Wax Lyrical.

One potential concern for me is that if it continues to buy up other businesses, Portmeirion could lose focus on its core pottery business. This still generates the majority of profits.

However, Portmeirion’s latest results suggest to me that this isn’t a problem yet. The group’s 2021 profits were only slightly below 2019 levels and City analysts expect profits to hit record highs this year.

The shares currently trade on just eight times earnings and offer a 4% dividend yield. I’m tempted to buy at current levels.

Promising newcomer

Franchise Brands (LSE: FRAN) only floated on AIM in 2016 but is growing fast and looks promising to me. This group owns a range of franchised businesses, including drain specialist Metro Rod.

Management recent expanded into the US with the acquisition of Filta, which provides commercial kitchen maintenance services through a franchise network in the UK and US.

Franchise Brands’ shares aren’t cheap, on 21 times 2022 forecast earnings. If growth slows, then the shares could fall sharply. But progress so far has been good, in my view.

Annual profit has risen from under £2m in 2017 to more than £5m last year. Franchise Brands is one AIM growth stock I’d consider buying for my portfolio.

Nuclear specialist

I normally avoid buying shares in building contractors. But I think that Renew Holdings is a bit different. This business specialises in essential infrastructure such as rail, water and nuclear energy.

Most of these areas are heavily regulated. Unlike housing and commercial property, they do not usually suffer from cyclical booms and busts. I’m particularly interested in the exposure to nuclear energy, which I think could be a growth area as the UK moves away from coal and gas.

Renew has delivered steady growth in recent years, with profits rising from £12m in 2017 to more than £30m last year. So far, management has been able to manage material shortages and rising costs without any impact on trading, we’re told.

If these problems continue, I think it might become more difficult for the company to manage them. That could cause profits to fall below expectations.

However, I’d see this as a short-term issue that would affect many competitors equally, so I’m not too worried. For now, I think Renew Holdings looks an interesting opportunity for continued growth.

A cash-backed 6% yield

Bank note authentication and brand protection specialist Spectra Systems has one of the highest dividend yields on AIM, at 6.4%.

This tempting payout looks fairly safe, in my view. Spectra has no debt and generates plenty of cash each year, thanks to its 35% operating profit margin. I think the main reason these shares don’t trade much higher is that the company’s growth rate has been fairly slow in recent years.

Investors worry that demand for bank notes and Spectra’s services could fall in future years. But there’s no sign of that this year and I think new products such as a machine-readable plastic banknote material could support long-term demand.

This is a niche business, but as an income investor I’m tempted to add a few to my portfolio.

Pharma growth

Healthcare is one of the long-term growth themes in my portfolio. One less well-known company in this sector is Alliance Pharma (LSE: APH).

Alliance specialises in buying mature consumer healthcare products and improving their distribution and marketing. The firm’s share price has doubled over the last five years.

This business may not sound that exciting, but profit margins have averaged over 20% since 2016 and sales have nearly doubled over this period.

I think management is a key risk here – misjudged future acquisitions could hit profits and damage the group’s growth record.

For now, though, I remain bullish about this company. I’d be happy to tuck a few shares away for the next five years.

25% growth forecast at this stock

My final pick is currency exchange specialist Argentex (LSE: AGFX). This small-cap specialises in providing foreign exchange services to corporate and private clients.

The business is led by founder and CEO Harry Adams, who has a 12% shareholding in the business. I reckon this should mean his interests are well-aligned with those of shareholders.

Perhaps the biggest risk I can see is that this is a fast-growing, competitive market. Will Argentex end up as a long-term winner or an also-ran?

I don’t know, but broker forecasts suggest it could report 25% earnings growth this year. Based on these estimates, I think the shares look very cheap on eight times forecast earnings. This AIM stock is on my list as a potential buy.

The post 7 top AIM market shares to buy now appeared first on The Motley Fool UK.

Profits could double in two years

My first penny stock is corporate currency exchange specialist Argentex Group (LSE: AGFX). This AIM-listed stock only came to market in 2019 and its performance has been a little inconsistent.

However, the latest accounts suggest a strong return to growth. Pre-tax profit rose by 22% to £3.3m during the six months to 30 September, while the currency value handled by Argentex rose by 67% to £8.3bn.

One downside to this business is that it’s a competitive sector, and it’s hard for outside investors to get much visibility on future profits.

However, Argentex has an operating margin of nearly 30% and is generating plenty of surplus cash. Analysts expect profits to double from £6m in 2021 to £12m in 2023.

Another attraction for me is that CEO Harry Adams owns 12% of the shares, so has plenty of skin in the game. I also think Argentex looks cheap on eight times forecast earnings, so this penny stock is on the buylist for my portfolio.

A fashion comeback?

Sales have doubled at fashion retailer Joules Group (LSE: JOUL) since the company listed on the London market in 2016. Unfortunately, the group’s profits slumped last year after the business was hit by cost increases relating to wages, warehousing and transport.

Joules’ share price has fallen by 75% over the last 12 months. The big risk is that Joules won’t be able to rebuild its profit margins, but this sell-off seems harsh to me.

Unlike some struggling retailers, Joules’ sales have kept on growing. Revenue for the half-year to 28 November rose 35% to £128m. This tells me that demand for Joules’ products is still strong.

I think CEO Nick Jones should be able to get costs under control. If I’m right, then profits could bounce back quickly. Broker forecasts put Joules on a forecast P/E of eight for 2022/23. I’d buy this turnaround stock for my portfolio at this level.

A penny stock for cake lovers

My final share is one I already own. Bread and cake producer Finsbury Food Group (LSE: FIF) makes a wide range of fresh products stocked by supermarkets in the UK and parts of Europe.

Finsbury’s share price has fallen by more than 30% since then end of 2021. That’s left the stock trading on a potential bargain rating of just six times forecast earnings.

Although management admits the company is facing pressure from rising food, energy and wage costs, Finsbury has a decent track record of managing these issues.

Finsbury’s sales rose 9% to a record £166.5m during the first half of this year. Although adjusted earnings fell 18% to 3.6p per share, City analysts expect full-year earnings to be unchanged from last year at 9.1p per share.

I think there’s scope for Finsbury shares to re-rate quite quickly, especially if price pressures ease. I’m continuing to hold this penny stock in my ISA as we enter the new tax year.

The post 3 cheap penny stocks I’d buy before the ISA deadline appeared first on The Motley Fool UK.

• I estimate this founder-led currency specialist stock could double
• Half-year results show a strong return to growth
• High profit margins and good cash generation

Currency specialist Argentex (LSE: AGFX) has fallen out of favour with investors over the last year. However, I can still see a lot to like about this business. For this reason, I’m looking at this penny stock as a possible buy for my Stocks and Shares ISA.

Essentially, Argentex’s business is quite simple. It helps businesses and wealthy individuals handle their foreign exchange requirements. In addition to straight transfers, this includes services such as hedging and other forward deals that provide protection against future exchange rate movements.

This is a sector where the big banks previously dominated. But clients have grown tired of their high fees and slow service. Challenger companies like Argentex are aiming to take market share away from the banks by offering a better, cheaper service.

A contrarian opportunity?

Argentex floated in 2019 and was growing fast until the pandemic struck. But growth stalled during the 2020/21 financial year, with pre-tax profit falling from £10.2m to £7.4m. Some disruption to client activity might seem understandable given the impact of the pandemic, but rival firms such as Alpha FX continued to report rising profits.

The company says that around two-thirds of last year’s profit drop was due to the cost of setting up a new headquarters. Even so, there’s no doubt in my mind that it was a disappointing year. The risk for shareholders is that Argentex won’t be able to regain its previous momentum.

Fortunately, the firm’s most recent results do show an encouraging return to growth. Revenue rose by 33% to £15.7m during the six months to 30 September, while pre-tax profit rose 22% to £3.3m.

If founder and CEO Harry Adams can maintain this rate of growth into 2022, I think Argentex shares could re-rate to a significantly higher valuation. Here’s why.

I reckon this penny stock could double

Argentex and rival Alpha FX are both very profitable, with a return on equity of around 25%. To put this in context, I usually consider anything over 15% to be high.

Argentex shares are currently valued at just 10 times 2022 forecast earnings, whereas Alpha FX is trading on 32 times 2022 forecast earnings. That’s a big difference. To be honest, it seems too big to me, but that’s the way the market rewards (and punishes) growth stocks.

As I mentioned earlier, Argentex’s latest results suggest this business is returning to growth. Broker forecasts believe earnings could rise by 38% during the current financial year, and by 36% the following year. That gives the shares a price/earnings growth (PEG) ratio of just 0.3 — well below the 1 level usually seen as good value.

If Argentex can hit broker forecasts, I think the shares could perform very strongly, re-rating to a higher valuation.

Valuing Argentex at 30 times earnings (like Alpha FX) would see the stock triple from here. That might be a little ambitious, but I can certainly see the potential for this penny stock to double.

For this reason, I’m considering adding a small holding in Argentex to my ISA portfolio.

The post A penny stock I’d buy for my Stocks and Shares ISA today appeared first on The Motley Fool UK.

With the benefit of hindsight, I’d do things a little differently. Here, I want to explain how I’d invest £3,000 today if I was starting from scratch.

Before I start, a quick health warning. Investing in the stock market can be a great way to build wealth, but the future value of shares is always uncertain. Share prices can fall and there’s no protection if things go wrong.

For this reason, I’d always make sure I had at least three-six months’ income saved in cash before I put money into the stock market.

How I’d start investing in stocks

Three thousand pounds is not a huge amount in stock market terms, but I think it is enough to build a decent starter portfolio.

What I’d do is invest £2,000 in an investment trust. This would give me exposure to a ready-made portfolio, run by professional management.

The one I’d choose is City of London Investment Trust (LSE: CTY). This trust invests in good quality large companies, with a bias towards dividend stocks. City of London’s largest holdings including drinks giant Diageo, British American Tobacco, Tesco and insurer Phoenix Group.

However, this trust is not just a FTSE 100 clone. Its portfolio also includes FTSE 250 dividend stocks and overseas firms such as Microsoft, and Swiss-based Nestle.

City of London shares currently offer a dividend yield of 4.8%. This is usefully higher than the FTSE 100 yield of around 4%. I also consider the trust’s payout to be exceptionally safe — it has increased its dividend for 54 consecutive years. That’s one of the longest records in the UK market.

What to watch

I feel confident I could put my money into City of London Investment Trust and probably never need to sell. But one risk that concerns me is that the trust’s focus on income could mean its share price growth underperforms the wider market during periods of strong growth.

Another possibility is that the trust will alter its strategy or increase its fees — both could leave shareholder returns lagging a cheaper index tracker fund.

However, these risks would not stop me buying City of London Investment Trust. On balance, I think it would be an ideal way for me to create a starter portfolio with limited cash.

Here’s how I’d invest the final £1k

I’ll admit City of London Investment Trust is quite boring. It’s never likely to make headlines or deliver the kind of rapid gains possible with a successful growth stock. 

Personally, I’ve got no problem with this. Where my money is concerned, I don’t want too much excitement. But as an active investor, I do want to have a chance of beating the market and finding big winners.

For this reason, I’d use the final £1,000 of my £3,000 budget to invest in small-cap growth stocks. The smallest amount I’ll invest in a single stock is £500, to limit the impact of trading costs. With £1k, I’d be able to add a couple  stocks to my portfolio.

So here I’m going to look at two small-cap stocks I’m interested today.

#Small-cap 1: a genuine bargain?

My first pick is currency exchange specialist Argentex (LSE: AGFX). This £100m company specialises in providing forex services to companies and wealthy individuals. After a difficult period in 2020, this business appears to have returned to growth.

Revenue rose by 33% to £15.7m during the six months to 30 September, while pre-tax profit was up 22%, at £3.3m. Profit margins are high, at around 27%. Argentex also converts most of its income to cash, supporting a useful forecast dividend yield of 2.6%.

Founder and chief executive Harry Adams owns 12.3% of Argentex stock. Therefore, I reckon his interests should be well-aligned with those of shareholders.

The main risk I can see is this sector is increasingly competitive. There are a number of smaller companies who are cutting the cost of foreign exchange and fighting to take market share from the big banks.

There’s no guarantee that Argentex will be a long-term winner. But the stock looks cheap to me on 11 times 2022 forecast earnings. If it can hit earnings growth forecasts of 34% for the current year, I think the shares could rise sharply. This is a stock I’d like to add to my portfolio.

#Small-cap 2: a UK consumer favourite

Sofa and carpet retailer ScS Group (LSE: SCS) benefited from a surge of pent-up demand last year and delivered very strong sales.

The company says that new orders have now returned to pre-pandemic levels after last year’s post-lockdown surge. But ScS’s order book of £132m at 20 November is still nearly double the level seen before the pandemic. This suggests to me that profits should be strong this year as the order book is gradually delivered.

One attraction for investors here is that ScS does not have to pay upfront for its stock. Instead, it collects a customer deposit and then orders from its suppliers. Customers must pay for their products before delivery, but ScS does not normally pay its suppliers until the end of the month following delivery.

As a result of this model, the retailer generates a lot of cash. At the end of the last financial year (July 2021), the group reported net cash of about £50m, excluding customer deposits.

The main risk I can see is that when ScS next reports, we’ll find an order slowdown since last year has continued. With travel likely to reopen this summer, people may choose to spend on holidays instead. Rising inflation could also be a problem, as it may put household finances under pressure.

As I write, its shares are trading on just eight times forecast earnings, with a forecast dividend yield of 5.9%. I think the shares are probably cheap at this level, especially given the company’s net cash position. So ScS is a stock I’d consider buying today.

The post Here’s how I’d invest £3,000 if I was starting from scratch today appeared first on The Motley Fool UK.

Here are three I’ve found that I’d buy for my portfolio today.

Under-the-radar growth

My first pick is currency exchange specialist Argentex (LSE: AGFX). This £100m business is one of a handful of companies that’s disrupting the currency services offered by banks by providing cheaper and faster services.

Argentex doesn’t serve the holiday travel market. Instead, the firm targets higher-value customers with more sophisticated requirements, such as institutions, companies, and high net worth individuals.

This is still quite a small business, but growth has been strong so far. Revenue rose by 33% to £15.7m during the six months to 30 September, while pre-tax profit jumped 22% to £3.3m. The main risk I can see is that this is an increasingly competitive market. Argentex’s profit margins have fallen over the last 18 months, cancelling out some of its growth.

However, I think the risk of slowing growth is already priced into the stock. Argentex shares are trading on just 12 times 2022 forecast earnings and offer a 2.5% yield. This is a growth stock I’d be happy to buy for 2022.

This turnaround is delivering results

My next pick is industrial chain specialist Renold (LSE: RNO). Unlike Argentex, this British firm is more than 100 years old. Renold makes chains and related parts used for machinery such as cement mixers, conveyor belts, escalators, and train doors. It’s one of the oldest companies in this market. Renold’s products sell all over the world.

This business has been through a difficult patch over the last few years, but now seems to be back on track. The company’s adjusted earnings are expected to rise by a chunky 79% this year, as the turnaround kicks in.

If Renold delivers on this forecast, I think the stock looks quite cheap on just nine times forecast earnings. My only serious concern is that this business still has a sizeable £100m pension deficit. This requires cash contributions of around £5.5m each year.

I’d want to keep an eye on the pension situation. But Renold is certainly a penny stock I’d be happy to own.

Too cheap to ignore?

The last share I’m going to look at is currently priced at just four times 2022 forecast earnings. The shares are also expected to provide a chunky 6.7% dividend yield in 2022.

The company concerned is Smiths News (LSE: SNWS), which delivers newspapers and magazines to shops all over the UK. The company has a 55% share of the market and has been in business over 200 years.

I’m sure you’ve spotted the obvious risk here — sales of printed newspapers and magazines have been falling for years as readers move online. My guess is that this trend will continue.

This decline is an ongoing challenge for Smiths, but the company’s big market share means that it still handles enough volume to make money. Cash generation is good, and Smiths’ debt levels have been falling fast.

I think this penny stock is probably too cheap at current levels. For this reason, I’d be happy to add Smiths News to my portfolio today.

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