Every month, we ask our freelance writers to share their top ideas for small-cap stocks to buy with investors — here’s what they said for January!
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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.
