I’m using Warren Buffett’s strategy and buying these growth shares

Warren Buffett is famous for buying companies below their fair value. Zaven Boyrazian explores two growth shares to buy that he thinks fit the bill.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s a tough time for growth shares at the moment. With investor uncertainty on the rise about the long-term effects of inflation, the prices of once-thriving stocks are tanking. As horrible as this is to watch, I’m personally not concerned.

Market corrections like this one can offer excellent buying opportunities for my portfolio. And I’m following the wisdom of legendary investor Warren Buffett to “be fearful when others are greedy, and greedy when others are fearful”.

With that in mind, let’s explore two UK growth shares from my portfolio that I think have been oversold by panicking investors. I’d like to buy more of both.

Should you invest £1,000 in Alpha Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Alpha Group made the list?

See the 6 stocks

A fintech disrupting corporate banking

Alpha FX (LSE:AFX) provides two main solutions to small and medium-sized businesses. The first is a currency risk management service. And the second is a suite of alternative banking tools, including the capability of completing international enterprise-scale transactions significantly faster and cheaper than traditional methods.

Over the last 12 months, this growth share has actually climbed by an impressive 30%. That certainly doesn’t sound like a stock in distress. But since the start of 2022 it’s down by almost 20% following its latest trading update.

Despite what the downward trajectory suggests, the report was actually quite encouraging, in my opinion. Revenue for 2021 is expected to come in ahead of analyst expectations at £77m – a 67% year-on-year jump. What’s more, this rapid growth has offset the expected margin pressures from increased hiring and newly acquired office space.

To me, this looks like a growth share caught in the crossfire of the current market environment. But I will admit, its valuation remains fairly lofty with a price-to-earnings ratio of 39. That could open the door to further volatility. However, given the consistent performance delivered by management so far, this is a risk I’m willing to take.

A growth share in the digital marketing space

Unlike Alpha FX, dotDigital‘s (LSE:DOTD) 12-month performance hasn’t been as pleasant. In fact, the growth share is down more than 20% over the last year. As a reminder, this company provides a cloud-based data-driven marketing platform from which companies can automate their advertising campaigns to maximise sales.

With so many new e-commerce businesses popping up, courtesy of the pandemic, demand for dotDigital’s solution seems to be skyrocketing. At least, that’s what the latest trading update would suggest, despite the lacklustre share price performance.

Going into the numbers, average revenue per customer (ARPC) increased by 19% during the second half of 2021, reaching £1,422 per month. And in turn, this pushed total half-year revenue up by 10% to £30.9m.

In my experience, when a business delivers solid results, and the share price falls, it’s usually a great buying opportunity. However, it’s not a risk-free endeavour. Scrutiny and regulations surrounding data privacy are mounting. Apple has already implemented data gathering restrictions on all devices running iOS 14. And given that dotDigital’s platform is built around analysing user data, it could create complications.

But this isn’t the first time restrictions on data gathering were implemented. And since the company was able to promptly adapt to the introduction of GDPR, I remain confident it can do the same again. That’s why I see the latest tumble in this growth share as a buying opportunity for my portfolio.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Alpha Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Alpha Group made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian owns Alpha FX and dotDigital Group. The Motley Fool UK has recommended Alpha FX and dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »