For long-term investors like me, I think this weakness has created an opportunity, as I expect plenty of these stocks to rebound in the not-too-distant future. With that in mind, here’s a look at three cheap growth shares I’d buy for my portfolio today.

Growth at a reasonable price

First up is Gamma Communications (LSE: GAMA). It’s a technology company that provides communications solutions (a rapidly expanding market) to businesses across the UK and Europe.

Gamma has grown at a very healthy rate in recent years and a trading update posted last month showed that the company continues to advance. Management said it expects the group to generate revenue growth of around 10% this year. It added that it had seen no impact from the chip shortage or inflation.

But this growth doesn’t seem to be reflected in the stock’s valuation. At present, Gamma’s price-to-earnings (P/E) ratio is just 17. I think that’s quite low given the company’s track record.

A risk to consider here is that Gamma is looking to expand in Europe. This expansion may not go to plan. I think this risk is baked into the share price right now however.

A play on the EV market

Another cheap growth stock I like the look of at present is Volex (LSE: VLX). It manufactures power products for the electric vehicle (EV), healthcare, and data centre markets.

Volex’s last trading update, posted in April, was very encouraging. It said the business had continued to trade strongly, with revenue from the EV sector nearly doubling over the period. It noted that revenue for the year ended 3 April was set to exceed $605m, which would represent year-on-year growth of around 37%.

This growth is being completely ignored by the market right now though. At present, the forward-looking P/E ratio here is just 10. At that valuation Volex shares are an absolute steal, to my mind.

It’s worth noting that the business could be impacted by supply chain and cost issues going forward. This is a risk to keep an eye on. But all things considered I see this stock as a ‘buy’.

Operating in a booming market

Finally, I also like Gresham House (LSE: GHE). It’s a UK-based investment management company that specialises in alternative assets.

The alternative assets market is booming right now. With bonds producing low returns, investors are looking for new ways to invest their money. And Gresham House is riding the boom. Indeed, over the last three years, revenue has climbed from £14.5m to £70.4m (helped by acquisitions). And in a recent trading update, the group said it is enjoying a lot of momentum right now.

The stock can still be picked up at a very reasonable valuation, however. With analysts expecting the group to post earnings of 54.6p this year, the forward-looking P/E ratio is just 16.

That said, Gresham House is a small company with a market-cap of just £342m. So its share price could be volatile in the short term. I’m comfortable with this risk though. I’m looking at this growth stock as a long-term play.

The post 3 cheap growth stocks to buy today appeared first on The Motley Fool UK.

The bank is one of the largest in the UK with millions of customers, so it has a tremendous competitive advantage. What’s more, unlike its other peers at the top of the market, Lloyds is relatively simple and easy to understand because there’s no investment banking arm stuffed full of complex derivatives or skeletons in the closet.

Then there’s the stock’s dividend potential. For fiscal 2018, City analysts believe the company has the financial clout to pay investors 3.4p per share in dividends, which translates into a dividend yield of 5.8%. Further growth is expected for 2019, giving an estimated yield of 6.2%. 

And as the bank is subject to strict rules and regulations, enforced by not one but two regulatory bodies (the FCA and PRA), investors can rest safe in the knowledge that the bank is not distributing more to investors than it can afford.

Finally, there’s the stock’s current valuation. Shares in Lloyds are changing hands today for just 7.7 times forward earnings. In my opinion, this severely undervalues the business. Indeed, the rest of the UK banking sector is trading at an average multiple of around 10. I reckon Lloyds’ size and position in the market justifies a premium to the rest of the banking industry.

However, while I can see that there are many things to like about Lloyds as an investment, there’s one thing I’m worried about.

Economic uncertainty 

Even though the bank has almost impeccable dividend credentials, when it comes to growth, the outlook is more uncertain. As my Foolish colleague Kevin Godbold recently pointed out, the group’s profits are extremely exposed to economic cycles, and while profits have been rising recently, there’s no telling when the tide will turn.

Because of this uncertainty, I would avoid Lloyds in favour of dynamic business Gresham House (LSE: GHE). With a market value of just under £100m, this asset manager is a tiddler compared to Lloyds, but it is growing fast. 

For the six months to the end of June, assets under management increased by 148% and total income leapt 98%. As well as organic growth, Gresham’s management has made several acquisitions over the past year and plans to make more in the years ahead to increase the group’s exposure to new markets and boost the number of services it offers to clients. With £33.3m of cash and liquid assets, the firm has plenty of financial firepower to pursue this strategy. 

And as Gresham’s growth is only just getting started, I believe the company will generate much better returns for investors going forward than Lloyds.

The one downside of the stock is that it does not offer a dividend. But management plans to change that during the next few months. In today’s half-year results release, the company declared its, “intention to accelerate dividend policy with an initial payment in 2019.“

With a third of its market cap made up of cash, Gresham can undoubtedly afford a substantial distribution, although in my view it is more likely the company will start small and increase the payout rapidly as earnings growth accelerates. 

The post Why I’d forget the Lloyds share price and go for this future income champion instead appeared first on The Motley Fool UK.

Gresham House (LSE: GHE) might have gone under many a stock-picker’s radar — partly, I expect, because the specialist alternative asset manager is not profitable right now.

But it is heading towards it, with a big reduction in the pre-tax loss on the cards for the year to December 2017, followed by positive figures for next year — analysts are predicting 5.2p in earnings per share for 2018.

The company announced on Tuesday that it has acquired Hazel Capital, a “leading UK manager of new energy infrastructure” which also manages a number of energy storage systems. The total cost is £2.6m in a combination of cash and newly issued shares.

Financially solid

Hazel’s asset management business brought in an operating profit of £0.9m in its last financial year, and that should make a nice contribution towards turning Gresham’s first-half operating loss of £0.8m in the direction of profit.

That loss was down from £1.2m a year previously, and at the halfway stage the company told us it was “on track to surpass management’s trading profitability expectations.“

Further progress was evident from a 50% rise in assets under management to £532m, and a doubling in asset management revenue to £2.4m. The firm also reported a strong balance sheet with £4.4m of its borrowing facility repaid, after legacy property asset Southern Gateway was sold for £7.25m. Tangible and realisable assets stood at £27.4m. 

Though the shares are around their 52-week high at 381p, I see them as good value.

Flying high

Huntsworth (LSE: HNT) is another whose shares have soared to a 52-week high this week, standing at 81.4p as I write.

The price has now doubled over the past 12 months, but that does need to be put into a longer-term perspective, as there has been a more modest gain of 73% over five years and actually a small fall over 10 years. 

Huntsworth is a global marketing agency with a focus on the healthcare sector, and the loss of some key clients in 2014 led to several years of reported re-tax losses and necessitated a major restructuring. 

But it does look like the company’s efforts are starting to pay off, and we’re now looking at a forecast pre-tax profit of £17.7m this year and earnings per share (EPS) of around 5.4p, rising to £20.3m and 6.2p respectively a year later.

Strong six months

First-half results revealed revenue up 9% to £94.2m and headline pre-tax profit up 58% to £10m — with EPS up 41%.

The 10% rise in the interim dividend marked a key milestone, based on “the strength of the group’s H1 performance and the outlook for the remainder of the year.“

Dividends had remained flat at 1.75p during the rough patch after having been slashed by 50% from 2013’s 3.5p, but forecasts are now suggesting 1.9p for the current year, rising to 2.1p next. Yields would still be only around 2.5%, but it looks like the start of a progressive comeback.

Despite the share price climb, forward P/E multiples for this year and next only stand at a 15.2 and 13.2, and that gives us PEG ratios of 0.3 and 0.9.

I reckon we could be looking at a very healthy growth phase for Huntsworth now, with dividends thrown in.

The post 2 hot growth stocks at 52-week highs that could still be worth buying appeared first on The Motley Fool UK.

However, despite Gresham’s rapid sales growth, shares in the business have barely budged over the past five years. So what’s gone wrong? 

What has gone wrong? 

Gresham’s speciality is alternative asset management, which simply means that the business invests money on behalf of clients into alternative assets such as property, renewable energy and venture capital funds. Profits from these activities are lumpy and the business has been unable to report a sustainable profit. 

Nonetheless, it looks as if management is now confident that the business really is on track to sustainable profitability. In today’s trading update CEO Tony Dalwood said: “The Group has achieved a number of milestones including passing through £0.5bn AUM….I am pleased to report that we are on track to achieve profitability on a run-rate basis in the second half of this year.” Pre-tax losses improved from -£1.2m to -£0.8m for the period under review. 

I’m excited about Gresham’s prospects. It seems that more and more investors are looking to alternative assets to provide returns as interest rates remain depressed and equity valuations continue to rise. The asset manager should benefit from this trend. What’s more, management has plenty of firepower to buy up bolt-on growth.

During the first half, the firm sold an inherited legacy property asset Southern Gateway for gross proceeds of £7.3m, allowing it to pay down outstanding debt and improving tangible realised assets to £27.4m — around 67% of Gresham’s current market cap.

Discount to asset value

Investors also seem to be overlooking the opportunity at real estate investment trust Palace Capital (LSE: PCA).

Just like Gresham, Palace is a specialist. The company’s area of expertise is commercial property and management has proven that it knows this area well. 

Since the end of 2014, shares in the REIT have returned around 71% excluding dividends as net asset value has expanded. Over the same period, Palace has paid out 51p per share in dividends for a total return of 90%, or around 17.4% per annum, an extremely impressive return for a company with a market capitalisation of less than £100m. For some comparison, over the past five years, the FTSE 100 and FTSE 250 have produced annualised returns of 9.4% and 14.7% respectively including dividends. 

And I believe Palace still offers value for investors. Today, the shares are changing hands at 383p with a dividend yield of 4.9%, but the net asset value of the firm is closer to 443p, 16% above the current market price. 

Considering the market-beating yield, and the discount-to-net assets value, I believe this could be an attractive buy for long-term investors seeking a steady income from property. 

The post 2 ‘under-the-radar’ small-cap stocks appeared first on The Motley Fool UK.