The annual ISA allowance is currently £20,000, with all future gains and income sheltered from HMRC. For anyone drip feeding money into the market over years or decades, that tax shield can make a big difference to the final pot.

What to choose

With retirement in mind, most people use their ISA allowance for large, established companies or funds rather than penny stocks. That’s mainly because most penny stocks are tiny, unproven businesses with patchy track records, volatile share prices and a higher risk of loss.

Many never reach meaningful scale, and some disappear entirely after a few difficult years. That’s not exactly ideal for a long‑term, tax‑efficient nest egg. But among the fledgling businesses trying to break into the big time, one company stands out for its long-term prospects.

Performance at a low price

SDI Group (LSE: SDI) looks exceptionally ISA‑worthy, despite still being a micro‑cap. It’s a buy‑and‑build group focused on specialist lab equipment, medical and scientific sensors and industrial products, often with a strong digital imaging angle.

The shares trade at around 65p, giving a market value of roughly £68m, and sits on the AIM market alongside other higher‑growth UK small-caps.

Over the past decade, it’s still up almost 500%, even after a brutal sell‑off in recent years. That goes a long way to affirm the company’s staying power.

Impressive results

Since listing in 2008, it now owns around 20 niche subsidiaries, built through a long stream of bolt‑on acquisitions since 2014. In the year to April 2025, group revenue edged up to £66.2m while adjusted operating profit rose to £10m, giving an adjusted operating margin of about 15%.

Adjusted diluted earnings per share (EPS) came in at 6.18p, up nearly 7% on the prior year, while gross margins on materials improved to almost 65%. Recent analysis puts return on equity (ROE) at roughly 9.3% and net profit margins at around 6.6%, which is respectable for a micro‑cap industrial technology group.

Long-term prospects

The balance sheet looks very healthy, with net debt around £25m, equivalent to roughly double EBITDA, with undrawn banking facilities still available. With equity at around £51.5m, debt’s easily covered and current assets outweight short-term liabilities by 2.2 times.

On current forecasts, the shares trade on a price‑to‑earnings (P/E) ratio of 15 and a price‑to‑sales multiple of around 1, with a PEG ratio around 0.5. Altogether, this suggests the current share price is lower than the stock’s fair value.

But it’s still a penny stock and carries the associated risks. The shares can be illiquid, and earnings remain sensitive to the broader small‑cap environment. Plus, industrial spending cycles add risk, especially in areas like healthcare equipment, manufacturing and aerospace.

The bottom line

Even with the risks, SDI looks like a cut above the typical penny share. It’s profitable, cash‑generative and diversified across a portfolio of specialist businesses, having already navigated one full economic cycle while compounding revenue and profit impressively.

Considered as a small allocation in a diversified portfolio, it could add growth potential and a dose of excitement to a Stocks and Shares ISA.

The post 1 penny stock I feel comfortable putting in a Stocks and Shares ISA appeared first on The Motley Fool UK.

I’ve recently come across a stock I think looks like a really interesting opportunity and worthy of further research. It’s a company that’s growing, but its valuation multiples don’t seem to reflect this.

The stock

The company in question is SDI Group (LSE:SDI). It’s a collection of industrial equipment companies that operate in markets where barriers to entry are high and competition’s low.

That’s a good combination. And the range of end markets is reasonably well-diversified, including healthcare, aerospace and industrial automation. 

The firm’s business model involves buying smaller firms and helping them grow. This can be through product development, expansion into new markets, or scaling up production.

This is the strategy that Halma and Diploma have used to generate spectacular long-term returns for investors. There are risks, but SDI’s in a good position to navigate these.

The business model

The biggest risk with acquisitions is paying too much for a business. When that happens, a company gets an unsatisfactory return and shareholders are worse off as a result. 

SDI’s big advantage here however, is its size. With a market value of £77m, it’s often in a position to be looking at businesses that are too small to attract bigger competitors.

As a result, it often makes acquisitions at prices that imply an EBIT multiple of around 6. And at that level, the company doesn’t have to generate much growth to do well. 

I think there’s a lot to like about the business. But the big question is why the stock’s been such a bad investment over the last couple of years. 

The risks

The big issue is that sales growth’s fallen off a cliff. In fact, it actually fell during the firm’s 2024 financial year due to a post-pandemic demand downturn in the healthcare industry.

For a growth stock, sales going backwards is a major red flag. It also highlights the risks associated with selling into industrial end markets, which can be cyclical. 

Things have started to improve recently though. And I think the firm’s strategy should give it opportunities to support its growth through acquisitions even while demand is subdued. 

In its latest update, the firm reported 10% revenue growth, with 3% coming from existing businesses. And it’s anticipating this rising to between 5% and 8% over the long term. 

The opportunity

At 1.2, SDI trades at a much lower price-to-sales (P/S) multiple than Halma (5.6) or Diploma (4.8). Its organic growth forecasts are lower, but that’s a big discount. 

As a result, it definitely goes on my list of stocks to look at more closely. Volatility is a given with a company of this size, but the compensation for this is more scope for growth. 

From my perspective, there’s a chance SDI might be one of the UK’s underappreciated growth stocks. And it’s not the only name on my radar that analysts aren’t really paying attention to.

The post After a 66% fall, this under-the-radar growth stock looks like brilliant value to me appeared first on The Motley Fool UK.

Here, I’m going to highlight two penny stocks that are quietly making British investors a fortune. Could they be worth a closer look?

Huge long-term returns

First up, we have SDI Group (LSE: SDI). It’s an acquisitive ‘buy-and-build’ business that’s focused on buying companies that design and manufacture specialist lab equipment, industrial and scientific sensors, and industrial and scientific products.

It currently trades for around 80p. At that share price, its market-cap is about £84m.

This company looks quite interesting from an investment perspective, in my view. For a start, it operates in several growth industries including life sciences, healthcare, and precision optics.

Second, its financials look pretty solid (which is relatively rare in the penny stock space). Not only are revenues trending up but there’s a decent level of profitability.

“While we are cognisant of the ongoing macroeconomic uncertainty, we believe SDI is well-positioned with a strong business model and solid long-term growth drivers in our key markets. Furthermore, we continue to have an active pipeline of acquisition opportunities and the financial strength to continue to execute our inorganic strategy”.
SDI management in July

Turning to the stock’s performance, it has certainly been a good long-term investment. Over the last decade, it has surged about 630% (turning £5,000 into around £36,500).

That said, it hasn’t gone up in a straight line. In 2021 it shot up (due to a boost from Covid-related revenues) and then in 2023 it came crashing down (as these revenues dried up).

At today’s share price, the stock trades on a low price-to-earnings (P/E) ratio of 11. At that earnings multiple, I think the stock’s worth considering.

There are risks though. A slowdown in its major markets (or the global economy as a whole) or botched acquisitions are some to think about.

Fast share price gains

The other penny stock I want to highlight is Skillcast (LSE: SKL). It’s a provider of governance, risk and compliance (GRC) software that serves a range of top businesses including Barclays, Tesco, and Schroders.

It currently trades for 61p. That share price puts its market-cap at £55m.

This stock doesn’t have the longest track record. That’s because it only came to the market in 2021. However, since its IPO, it’s delivered impressive returns. Buying in the IPO, an investor would have seen a gain of around 65%.

Alternatively, had they bought in the growth stock selloff of 2022, they could have tripled their money in just three years. Recently, this stock has soared.

Zooming in on the company’s operational performance, it’s been decent lately. For example, for the first half of 2025, revenue was up 18% to £7.5m while EBITDA was up 2,074% to £0.7m.

Given this momentum, I reckon the stock’s worth a look today. However, I’ll point out that with a stock like this, artificial intelligence is potentially a risk.

The post 2 penny stocks that are quietly making British investors a fortune appeared first on The Motley Fool UK.

So far in 2025, the Footise’s been fairly steady, led by familiar heavyweights. Rolls-Royce shares are up an impressive 66%, with only Babcock and Fresnillo ahead among the blue-chips. But dig beneath the surface and there are some tiny UK shares doing even better — and crucially, with more than just a speculative bounce behind them.

Many small-cap stocks racing ahead this year have shaky profits and stretched valuations. However, I’ve found two penny stocks that not only boast strong share price gains but also seem to be trading on reasonable fundamentals.

Staffline Group

Staffline Group‘s (LSE: STAF) a small recruitment firm that supplies workforces to major UK retailers such as Tesco and Morrisons. Given its ties to defensive consumer staples, it’s perhaps no surprise that demand has remained stable.

In May, management reaffirmed it’s confident full-year 2025 results will meet expectations. Investors clearly took notice. The share price has rocketed 102% year-to-date, comfortably leaving Rolls-Royce in the dust.

But this isn’t just a hype story. Under the bonnet, things look reasonably solid. Diluted earnings have grown 20% year on year, while revenue’s up nearly 6% to £993m. Profitability’s still tight — the operating margin’s only 1%, with return on capital employed (ROCE) at 8%.

On valuation, the stock doesn’t look overly stretched, trading at a forward price-to-earnings (P/E) ratio of 13.

However, there are some risks. In particular, recent UK budget changes have increased National Insurance obligations for businesses. These costs could squeeze margins, and in a downturn, big employers might trim staff, hitting Staffline’s core business hard.

SDI Group

SDI Group‘s (LSE: SDI) another under-the-radar winner, up 66% so far this year, roughly matching Rolls-Royce’s gain. The company makes specialist industrial and scientific sensors and laboratory equipment — hardly glamorous, but clearly in demand.

In June, it acquired Severn Thermal Solutions for £4.8m, a move expected to bolster earnings. Profitability looks more than sufficient for a micro-cap, with an operating margin of 11.4% and return on equity (ROE) of 7.7%.

It trades at a forward P/E ratio of 15.3, which seems fair given the growth story, although the price-to-book (P/B) ratio of 2.13 is a touch high. Encouragingly, the balance sheet looks healthy, with debt well-covered by earnings and cash flow.

Still, there are some clear risks. Small firms like SDI often have limited analyst coverage, volatile trading patterns, and depend on relatively narrow customer bases. A single contract loss could materially dent profits.

Digging out gems

I’m a fan of blue-chips, but at times it can pay to look past the headlines — often, the real gems hide where few bother to look. While penny stocks are always risky, these two seem to have some real substance behind the soaring share prices. 

Staffline’s rebuilding steadily, while SDI continues to expand its product reach and tuck-in acquisitions. For adventurous investors looking to diversify into promising penny stocks, I think both are worth considering. 

The post 2 profitable penny stocks that are outpacing Rolls-Royce this year! appeared first on The Motley Fool UK.

In this piece, I’ll discuss two penny stocks I think could be worth considering for growth investors.

A fast-growing niche lender

Time Finance (LSE: TIME) specialises in loans to small and medium-sized businesses. The company’s two main areas of focus are lending secured by so-called hard assets (such as machinery or vehicles) and invoice factoring.

Time’s loan book has doubled to over £200m since May 2021. Its share price has also doubled over the same period.

Management recently announced plans to target a further 50% growth in lending to over £300m by 2028.

Of course, lending money is not necessarily difficult. It’s getting it back – with a healthy profit – that can be harder. This is where I think the opportunity could be.

Time Finance’s recent growth has been profitable, but not as much as I’d like to see. The company generated a return on equity of around 7% last year, which is rather average.

However, CEO Ed Rimmer believes he can increase this to “mid-teens percentages” by 2028. If Time Finance can deliver a bigger loan book and higher returns on equity, I think the stock could deserve a higher valuation.

Brokers have a price target of 112p for this penny stock, but this isn’t without risk. This business has suffered problems with lending quality and growth before. It could do so again, especially if the UK economy slows.

I wouldn’t bet the farm on Time Finance. But I think the shares are worth considering as a buy at current levels, as part of a diversified portfolio.

Scientific growth

Another penny stock on my radar at the moment is scientific instruments maker SDI Group (LSE: SDI). As its name suggests, this company owns a number of businesses that produce specialist scientific and industrial equipment.

Profits hit record levels during the pandemic, due to a surge sales of specialist PCR cameras used in Covid testing.

The company says that life sciences and biomedical markets are more challenging at the moment. Adjusted pre-tax profit for the six months to 31 October 2024 fell by 13.5% to £3.2m.

However, chief executive Stephen Brown says the company has seen “improvements from September onwards”.

Broker forecasts certainly suggest the low point may have passed for SDI. City analysts expect the company’s pre-tax profit to be stronger during the second half of the year and are forecasting a full-year result of £8.4m. Further progress is expected in 2025/26.

Meanwhile, SDI is continuing to expand through acquisitions, adding new specialist capabilities to its portfolio.

The main risk for me is that SDI’s management will overpay for acquisitions — or choose deals badly.

However, SDI shares are currently trading on just nine times forecast earnings. I think there could be a significant opportunity here, if growth gets back on track.

Brokers have a price target of 135p for the shares, more than double the current share price.

The post Prediction: these penny stocks could be among 2025’s big winners appeared first on The Motley Fool UK.

Here are three I believe are worthy of investment this month.

Team 17

A market darling during the pandemic, indie video game developer Team 17 (LSE: TM17) is now very much unloved. The AIM stock’s share price has halved in 2022 to date. Personally, I see this as an opportunity.

Back in March, the company announced record results. Following the release of 12 new games in 2021, revenue rose 9% to £90.5m. Pre-tax profit was up 11% to £29.1m.

A risk with any developer is that what they produce has no guarantee of proving popular. Moreover, the rise in the cost-of-living combined with wage inflation is expected to increase costs this year by roughly £1.7m. Revenues are also expected to be hit by around £4m due to the Ukraine/Russia war.

However, the balance sheet looks strong and a number of recent acquisitions are expected to be “immediately earnings accretive” in 2022.

At 17 times forecast earnings, I think Team17 looks a great buy.

SDI

Scientific and tech product producer SDI (LSE: SDI) is an AIM stock I’ve had on my watchlist for some time now. The reason I haven’t been buying is that the valuation has always looked full. However, the company is now getting much closer to entering my ‘buy zone’.

Sure, it’s still not cheap. The shares currently change hands for 19 times earnings. So there’s a chance we might not have seen the bottom yet if economic fears worsen. There’s also no dividend stream to compensate me while I await a recovery.

Full-year numbers are due on 18 July. Based on its most recent trading update, I think these should be pretty stellar. A couple of months ago, SDI said revenues and profits were expected to “materially exceed current market expectations“. Not many businesses are saying that right now!

Consequently, I’d be comfortable buying now.

Strix

A final AIM stock I think is worthy of investment in Juy is one I already own: kettle safety control supplier Strix (LSE: KETL). This is despite seeing all my paper profits evaporate in 2022. The shares are down almost 45% this year.

Still, the fact that I’m a long-term investor means my glass is always half-full. Having arguably got a little frothy last year, the company’s valuation has now returned to a more reasonable level. Shares now trade at 11 times forecast earnings and come with a 5.2% dividend yield.

In May, Strix announced it was “maintaining expectations for the full year“, based on trading in 2022 so far. Product price increases across its entire range have been “successfully implemented” in the face of higher inflation. And manufacturing operations in China have not been severely impacted by the resurgence of Covid-19. That doesn’t exactly sound like a company in crisis to me.

I’m very tempted to top up at this level.

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Here are three companies that all feature on my shopping list to begin snapping up today.

Focusrite

The share price of global music and audio equipment firm Focusrite (LSE: TUNE) has had a pretty shocking year, so far. Priced at 950p, as I type, the stock is down 32% in value since the beginning of January.

At least some of this tumble makes sense. The AIM-listed company was one of the few beneficiaries of the multiple UK lockdowns. Now that we’ve regained our freedom, demand isn’t quite so robust. Recent half-year results revealed a 2.5% fall in group revenue to £92.9m.

Sure, galloping inflation and component supply issues haven’t exactly helped. The risk here is that these continue to impede progress for a while.

Still, it’s worth noting that the company is making far more money than it was pre-pandemic. The rise in content creation and recovery in live events also bode well for Focusrite’s earnings outlook.

Having once traded well above 30 times forecast earnings, shares now change hands for a much-more-reasonable P/E of 18. I suspect opening a position now could prove lucrative for me in the medium term.

CVS Group

Another growth share I might begin buying is veterinary services provider CVS Group (LSE: CVGS). The shares might not have had such a bad 2022 compared to Focusrite. Nevertheless, an 18% reduction is still significant.

In my opinion, CVS has great defensive qualities. I reckon the vast majority of pet owners won’t be cutting down on how much money they spend on their furry (and not so furry) companions, even as prices rise. This becomes even more likely when it concerns the latter’s health.

The jump in pet ownership — and the fact that many of these animals will be family members for many years — should also mean earnings keep growing.

Naturally, at least some of this is already reflected in CVG Group’s valuation of 20 times forecast FY23 earnings. That’s not cheap and there’s a chance the shares could dip lower if global markets continue to wobble. However, I’m tempted to begin nibbling now.

SDI

A final growth share I’ll highlight is SDI Group (LSE: SDI). Of the three mentioned here, its share price has performed the best in 2022. This is not to say that the 16% fall has been easy for existing holders to bear.

SDI designs and manufactures scientific products for use in digital imaging and sensing. That doesn’t strike me as cyclical work. In fact, this month’s trading update shows just how well the small-cap is doing.

The company expects both revenues and profits for the last financial year to “materially exceed current market expectations“. Chairman Ken Ford also believes SDI’s acquisition strategy and commitment to ongoing investment should make FY2023 its “best year yet“.

Naturally, no investment is without risk. My biggest issue here is that the valuation (20 times earnings) is fairly high compared to industry peers

For a company that’s consistently grown annual earnings for quite a while now, I think it’s a risk worth taking.

The post I’d buy the dip in these quality growth shares appeared first on The Motley Fool UK.

Top growth stocks

So which ‘no-brainer’ growth stocks would I consider buying in February? At the top of my list right now is a small medical equipment provider called SDI Group (LSE:SDI). It focuses on digital imaging and sensor products. What I like about this Cambridge-based business is its strategy. It aims to grow by buying smaller, niche and high-margin businesses. By allowing them to operate somewhat independently, SDI can respond quickly to new trends and events. It’s a strategy that seems to be working. Sales have tripled over the past five years, while profits have grown six-fold.

Bear in mind that to continue above-average growth it will need to keep finding new businesses to buy. That can take time so I might need to be a patient investor. And acquisitions can be risky too if they don’t work out. But with a profit margin and return on capital both above 20%, I’d say this is a high-quality business. For me, mixing growth and quality characteristics is a winning combination and I’d be happy to add it to my Stocks and Shares ISA.

TV and Movies

The next top growth stock I’d buy in February is Zoo Digital (LSE:ZOO). With a market capitalisation of just £125m, it’s firmly in the small-cap group. But what it lacks in size, it makes up for in potential. Zoo provides media services to the global entertainment industry. For instance, it provides a host of services including subtitling and dubbing to adapt TV and movie content to global audiences.

Major global streaming giants like Netflix continue to create more content for its subscribers. Global content spend has reached record levels and is forecast to rise further over the coming years. It’s creating volumes of TV material that needs to be prepared for distribution in many countries and languages, resulting in more demand for Zoo’s services.

An exciting growth story

It’s not just Netflix either. WarnerMedia, NBCUniversal and ViacomCBS have all launched streaming video platforms in the US and they’re expected to expand internationally in 2022. I reckon all of this new original content bodes well for Zoo over the coming years.

A word of warning, though. The profit margin is relatively slim at under 3%. I’d like Zoo to focus on growing that number. A greater margin could provide more of a buffer. Also, as the market grows it could invite stronger competitors. Zoo will need to stay on its toes to keep up.

That said, Zoo recently reported a strong trading performance, and it expects revenues for the year to be ahead of analyst expectations. Also, it’s encouraging that it has been appointed as a primary vendor for an upcoming European launch of a streaming video service. This is likely to raise sales further. Overall, the future looks bright for it in my opinion and I’d buy this growth stock today.

The post 2 ‘no-brainer’ growth stocks to buy in February appeared first on The Motley Fool UK.

My top three have a market capitalisation of just £200m to £300m. This is pretty small compared to the relative giants of the FTSE 100. But smaller companies can offer great potential. I frequently see shares of small firms double or triple over a few years. That would be difficult for a large company like BP, in my opinion.

Granted, investing in smaller growth stocks can be riskier. Often their share prices can be more volatile. Sometimes their shares are more illiquid. This can amplify movements up and down. Also, small companies are still growing and can often face short-term hurdles and hiccups.

Overall, I hold a diversified selection of companies in my Stocks and Shares ISA. As I have a reasonably long investment time frame, I own several growth stocks. But I also own shares that have styles spanning value, defensive, income, and momentum.

A supreme leader

Often, companies have characteristics that share multiple styles. For instance, a growth share could also demonstrate defensive qualities. One such share I’d consider buying for 2022 is a relatively small company called Supreme (LSE:SUP). Supreme is a manufacturer and brand owner of several consumer goods. Its main business areas are batteries, lighting, vaping, and sports nutrition.

There is much to like about Supreme. It’s run by competent management, in my opinion. CEO Sandy Chadha offers an owner’s mindset. I’m also encouraged that he has ‘skin in the game’ and owns 57% of the shares. Sandy started in the company from school and grew the business from £1m to over £90m of revenues over a few decades. Starting with batteries, Supreme became a major supplier to the big discounters including B&M and Home Bargains. Using these customer relationships, Supreme was able to expand into the lighting business, then into the fast-growing vaping space.

I’d say it benefits from a great business model. By creating brands from scratch and manufacturing in-house, it can keep its costs low and profit margin high. This allows it to sell particularly good value products that are popular with customers. The plan seems to be working. Sales have grown by 14% per year on average over the past three years. All while achieving an impressive gross profit margin of 30%.

I do have to bear in mind that Supreme’s largest 10 customers account for over half of the group’s sales. If any of these customers decide to stop or reduce orders, it could have a material impact. That said, many of the brands are only sold by Supreme and some of its relationships span over 30 years.

Overall, I reckon the future looks bright for Supreme. It’s expanding into new areas and doing so at low cost. I’d be happy to buy shares in this British growth stock for my portfolio.

Laser-focused growth stocks

Next on my list of growth stocks for 2022 is an AIM-listed company called Somero Enterprises (LSE:SOM). This £280m business manufactures laser-guided equipment that’s used to make perfectly level concrete floors. Yes, it might seem quite random. But I’d say that this niche business is a high-quality growth share with some remarkable characteristics.

It offers a return on capital employed of almost 60% and an operating margin of over 30%. These are some of the best quality metrics that I’ve come across recently. But it doesn’t end there. Usually these factors result in a more expensive share. But I can buy Somero for a price-to-earnings-ratio of just 11 times. I reckon that’s cheap.

Earnings are growing steadily and it recently noted strong trading momentum. It also seems to be well-placed in growing markets. For instance, its equipment is used to create flat floors for large warehouses and multi-storey data centres. I reckon demand for these could continue for some time.

Somero does operate in a cyclical market. There’s ample business when the economy is strong, but this can potentially reverse in a recession. The shares could be volatile at times too so that’s something I should consider. That said, it currently has a forecasted dividend yield of 7%. This should provide some buffer to share price turbulence. All in all, I’m a buyer.

Small but mighty

My third British growth stock is the smallest of the three. It’s called SDI (LSE:SDI) and it has a market capitalisation of just under £200m. SDI (formally known as Scientific Digital Imaging) designs and manufactures scientific and technology products. It focuses on two main areas, digital imaging and sensors.

SDI has demonstrated strong financial growth for several years. It has shown average annual sales growth of 33% over the past five years. That’s impressive. Its profits have been equally as impressive. So what’s driving the great performance? Well, SDI has a buy-and-build strategy. What I mean by this is it looks to purchase profitable companies within its niche areas of expertise. It then creates an environment for these typically smaller companies to flourish.

Business is growing nicely at this AIM listed group. It recently reported “another strong set of results and solid operational progress for the six months to 31 October 2021”.

Acquiring companies does come with risk. There is much that can go wrong. That said, SDI seems to have a decent track record. This somewhat mitigates acquisition risk. One more thing. With a price-to-earnings ratio of 34, the shares do not look particularly cheap. But I’d say that’s not unusual for quality growth stocks.

Overall, I like what I see. A good-quality small business with a proven model of successfully buying smaller companies. If it can continue doing so for at the least the next few years, I reckon its share price could potentially double.

The post 3 incredible British growth stocks I’d buy for 2022 appeared first on The Motley Fool UK.

Today, the company announced yet another set of record numbers for the first half of its financial year. 

Profits jump!

Revenue increased 19% to a little over £737m in the six months to the end of September as the company “performed well in all sectors and major regions“. Adjusted for foreign exchange fluctuations, the growth rate comes in at 23%.

Halma’s bottom line was even better. Statutory pre-tax profit jumped a heady 74% to £167.5m, albeit boosted by the sale of its security systems business (Texecom) for £34m. 

As if this wasn’t good enough, the company also decided to leave its full-year guidance unchanged despite rising costs and “increased supply chain, logistics and labour market disruption”. Other FTSE 100 constituents can’t afford to be quite so optimistic.

This is not to say today’s statement was devoid of caution. For example, Halma noted that “more typical rates of revenue growth” were expected in the second half. This may help explain why the shares were off almost 2% this morning. 

FTSE 100 quality stock

Based on this update and the long-term performance of its share price, I’d buy a slice of Halma today. The company operates in a highly defensive sector that should continue growing, regardless of the wider economic environment. As a global business, earnings are nicely diversified and there’s little in the way of debt on the balance sheet.

It’s also worth mentioning the dividends. A forecast yield of 0.6% won’t attract income seekers. However, Halma has grown its annual payout by 5% or more for 42 consecutive years. That sort of trend is only seen in businesses of the highest quality. With a “healthy acquisition pipeline“, I can’t see it ending anytime soon. 

The only real concern I have rests on the valuation. A forecast P/E of almost 50 is extremely rich. As such, I wouldn’t be going ‘all in’ on this FTSE 100 stock now. Picking up bigger chunks of HLMA when markets are crashing would be the dream scenario.

From little acorns

Of course, Halma isn’t the only attractive ‘buy and hold’ option out there. Small-cap SDI (LSE: SDI) is another quality stock I’d snap up. The firm designs and manufactures digital imaging products for fields as diverse as life sciences, healthcare, astronomy and art conservation. And, right now, business is booming.

Earlier this month, the AIM-listed company said it expects to report “very strong sales and profits” for the first half of its current financial year. As a result, full-year revenue of £45m and adjusted pre-tax profit of £9.2m have been forecast. Encouragingly, both numbers were higher than what analysts had been predicting. 

On the downside, SDI shares aren’t cheap. A P/E of 30 suggests there’s little room for error. Especially as management already expects the heavy demand seen for its Atik cameras over the pandemic to reduce. Once again, supply chain pressures are a potential headwind.

Still, I’m confident this could become another multi-bagging stock by 2030 if recent progress is anything to go by. I regard SDI as a buy today. But I’d really get stuck in when markets next wobble.  

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