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3 UK growth stocks I’d buy in October

Edward Sheldon, CFA
·3-min read
A stock price graph showing growth over time, possibly in FTSE 100
A stock price graph showing growth over time, possibly in FTSE 100

As we begin October, economic uncertainty remains high. Here in the UK, we have Brexit on the horizon. Meanwhile, in the US, the Presidential election is only a little over a month away.

I wouldn’t let this uncertainty put you off investing, however. As always, there are plenty of attractive opportunities right now. Here’s a look at three UK growth stocks I’d buy in October.

A top insider just bought here

One growth stock that I believe looks very attractive right now is Diageo (LSE: DGE). It’s an alcoholic beverages giant that owns a world-class portfolio of spirits brands. Its share price has plummeted this year due to Covid-19. I think this is a fantastic buying opportunity.

Diageo faces some challenges at the moment. Realistically, it will continue to do so until we see mass vaccination for the coronavirus.

However, recent news from the company has been encouraging. Earlier this week, Diageo advised that the US side of the business has been performing strongly and ahead of expectations. It also said that the outlook for the first half of the year has improved recently.

Interestingly, Diageo’s CFO recently purchased some shares in the company. That’s a good sign, in my view. It suggests that the insider is confident about the future.

DGE shares currently trade on a forward-looking P/E ratio of 21 using the FY2022 earnings forecast. I think that’s good value.

Work-from-home growth stock

In the mid-cap space, I like the look of Gamma Communications (LSE: GAMA). It’s a leading provider of communication solutions to businesses. Naturally, its services are in high demand at the moment due to the work-from-home trend.

Gamma issued a great set of half-year results in September. For the six months ending 30 June, revenue was up 12% while adjusted earnings per share were up 22%. The dividend was increased by 11%. That’s a fantastic performance in the current economic climate.

Aside from strong recent performances, there are a few other things I like about Gamma. One is its high level of profitability. Over the last three years, return on capital employed has averaged 24%, which is excellent. Another is its strong balance sheet.

Gamma currently sports a forward-looking P/E ratio of about 33. So, it’s not exactly cheap. However, I think this high-quality growth stock deserves a premium valuation. I’d buy today.

Largest ever contract win

Finally, in the small-cap space, I think Cerillion (LSE: CER) could be a good stock to buy in October. It’s a leading provider of cloud-based (SaaS) billing, charging, and customer management systems. Its vision is to be the enabler of seamless digital experiences for the world’s communications and subscription businesses.

In September, Cerillion landed its largest ever contract – an £11.2m deal with a “major UK provider of enterprise connectivity solutions.” The contract is for the supply and implementation of Cerillion’s pre-integrated end-to-end customer relationship management (CRM) and billing solution. This deal demonstrates the quality of its solutions and the company’s growth momentum right now.

Cerillion is a very small company. Its market cap is just £93m at present. This means there could be significant share price upside if the company can continue to land major contracts. Its forward-looking P/E ratio is 27, which I see as reasonable, given recent growth. All things considered, I think this growth stock looks pretty exciting.

The post 3 UK growth stocks I’d buy in October appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Diageo and Gamma Communications. The Motley Fool UK has recommended Diageo. 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