The turn of a new year is a time to reassess what you have, how you’ve spent your time and money, and to rewrite your investing goals.
With that in mind, these are the top shares I’m watching for real growth in the coming 12 months.
Why only two?
Most ‘best for 2020’ lists might offer a top 5 or top 10, but my honest assessment is that concentrating on fewer stocks will be better for your wealth.
We know from Warren Buffett’s legendary deep research and gargantuan patience that poorer investors will over-trade, buying too many shares too often instead of focusing higher stakes on fewer, better companies.
I’d classify those below — both AIM-listed — as having higher risk-reward profiles than the stable FTSE 100 companies paying 6% dividends that make up the bulk of my portfolio.
AIM stocks have looser financial reporting requirements than main market firms. If your investing style is set-and-forget, these may not fit your risk profile.
Cambridge firm SDI Group (LSE:SDI) designs and builds digital imaging technology for the life sciences, precision optics for astronomy and instruments for healthcare.
It is growing at a fair old clip. 2018 and 2019 were particularly good years, with year-end 2019 showing margins consistent at 66%, revenues up 20% to £17.4m, and pre-tax profits at £2.1m.
Then December’s half-year results put turnover 58% higher, boosted by double-digit growth from its acquisitions Sentek, Astles, and Applied Thermal Control.
The £4.3m buyout of profitable gas flow manufacturer Chell Instruments was another solid move to grow 2020’s earnings.
The shares come with a forward price-to-earnings ratio of 27, which may be a little high for some tastes. But booming earnings mean greater valuations and I think SDI will continue to outperform.
Another AIM-lister with a good track record of climbing revenue and profits, Solid State (LSE:SOLI) has been something of a revelation this winter. The Redditch tech firm supplies rugged computing equipment for use in harsh environments, with clients including oil and gas producers, the military, and security contractors.
The company’s market cap has shot up from £39.8m three months ago to £53.5m at the end of December 2019.
A $3m rail contract win kicked off September, then 2019 first-half results showed record profits and sales growth of 7.5%, with the company returning to net cash. Profits for the first half were 75% up on the year before, and revenue 43% higher to £33.6m.
The company floated on AIM in 1996, so is no flash in the pan, in my opinion. Its revenue, pre-tax profits, and earnings per share have improved every year since 2016.
It has been growing organically, but in November 2018 acquired marine wire, cable, and battery manufacturer Pacer group for £3.8m and raised its dividend by 4% to an all-time high of 12.5p.
Chair Tony Frere noted in a September 2019 trading update that very strong first-half sales “illustrate our success…and our aspiration to double the size of the business“, with full-year profits “significantly ahead of expectations“. Based on the first-half results out in December, Solid State hiked the interim dividend by 25%.
At a trailing price-to-earnings ratio of 16, the shares aren’t even overvalued. Now could still be a good time to get in to SOLI before it really kicks off in 2020.
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- Top shares for 2020
Tom Rodgers owns shares in SDI. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2020