Every month, we ask our freelance writers to share their top ideas for growth shares to buy with investors — here’s what they said for January!
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What it does: JD Sports sells sportswear and leisurewear globally across its own store estate and online.
By Christopher Ruane. Coming into 2023, JD Sports (LSE: JD) may not look as attractive as it did a year ago. Longstanding management that had helped propel the company’s success has been replaced. There is a risk that a challenging year economically may lead shoppers to spend less, hurting sales and profits.
Set against that, though, is the proven success of JD’s simple retail formula. Its huge reach gives it buying power. It has built a strong following and loyal customer base with well-honed advertising campaigns that help to create demand.
The falling JD Sports share price over the past year suggests investors may be falling out of love with the growth story. But new management could actually help invigorate sales. I see continued opportunities for the company to expand internationally as well as long-term potential in the company’s gym business.
I reckon the underlying long-term growth drivers remain strong as 2023 begins.
Christopher Ruane owns shares in JD Sports.
What it does: AJ Bell provides investment administration, dealing and custody services.
By Paul Summers. I reckon shares in investment platform AJ Bell (LSE: AJB) represents a great growth buy at the current time.
Despite the cost-of-living crisis and the downward trajectory of markets, recent trading has been surprisingly good. Revenue increased 12% to £163.8m and pre-tax profit rose 6% to £58.4m in FY22. Things could get even better when the economic clouds disperse.
There’s just one snag. As an investor, I can have quality or a bargain price but arguably not both. AJ Bell is a good example of this. Based on analyst projections, the stock can now be mine for a still-rather-steep P/E of 26.
Even so, this valuation is lower than the five-year average. I also think it can be justified based on the high margins and returns on invested capital that AJ Bell consistently delivers.
Paul Summers has no position in AJ Bell.
Scottish Mortgage Investment Trust
What it does: SMT invests in international growth, mostly high-tech Nasdaq stocks.
By Alan Oscroft. I rarely invest in growth shares, because of the volatility. And some of the sky-high P/E valuations make me twitch.
But Scottish Mortgage Investment Trust (LSE: SMT) helps with both those concerns.
It invests in an array of worldwide growth companies, focusing on the US Nasdaq tech stock index. It gets me good diversification from a single investment.
That helps when an individual stock or sector is falling. The trust holds Tesla, for example, and I think that was overvalued. But that risk is cushioned by holdings in unrelated sectors, like pharmaceuticals researcher Moderna.
Valuation is the other thing. I’ve thought Nasdaq stocks were overvalued for some time. I know people who know nothing about company valuation who were buying Tesla shares right up to the peak.
There’s risk of further falls. But with the Nasdaq down more than 25% in 12 months, I think January is a good time to buy.
Alan Oscroft owns shares in Scottish Mortgage Investment Trust
What it does: Focusrite is a designer and manufacturer of audio production equipment and software for professionals and hobbyists.
By Zaven Boyrazian. The audio equipment industry is quite a niche avenue. Yet it’s one that Focusrite (LSE:TUNE) has seemingly started to dominate. The music hardware and software creator continues to expand its powerful brands targeting professionals and hobbyists alike.
Profitability in 2022 suffered on the back of inflationary costs as well as some supply chain disruptions. However, the latter has since been resolved. And recent successful price hikes are starting to offset margin pressure.
Meanwhile, two of its bolt-on acquisitions have started exceeding expectations. Its Sequential brand saw a 206% revenue surge, while Martin Audio is up by 56%, both surpassing pre-pandemic levels.
In total, management launched 22 new productions throughout the year while keeping its balance sheet robust. The slowdown in consumer spending poses a short-term threat to the business’s hobbyist side. But in the long run, Focusrite seems on track to deliver some impressive gains for patient investors in this growth share.
Zaven Boyrazian does not own shares in Focusrite.
What it does: Greggs manufactures and then sells morning goods and other baked products from 2,000 locations across the UK.
By Royston Wild. Buying retail shares can be risky during this cost-of-living crisis. Even sales of food and other essential items are under the cosh right now.
But trading has so far remained resilient at bakery chain Greggs (LSE: GRG). And I’d buy it for my portfolio before fourth-quarter trading numbers are released on Thursday, 5 January.
The FTSE 250 firm’s most recent financials in October showed like-for-like sales at its company-managed shops up an impressive 9.7% in the 13 weeks to 1 October.
Greggs sells tea, cakes, sausage rolls and other staples of the British diet. And it offloads them at low price points. When combined, these qualities leave the company more resistant to tough economic conditions than most other UK-focussed retail stocks.
This explains why City analysts expect Greggs’ earnings to keep growing. Current forecasts suggest bottom-line increases of 4% and 12% in 2023 and 2024 respectively. Earnings are tipped to edge 2% higher this year.
Royston Wild does not own shares in Greggs.
What it does: easyJet is a British multinational low-cost airline group. It operates domestic and international services on almost a thousand routes across Europe.
By John Choong. easyJet (LSE: EZJ) shares are trading below their pandemic lows while passenger numbers are higher than that period. For that reason, its shares are trading on an absolute bargain, in my opinion, and here’s why.
The group’s operational performance continues to improve and its Holidays segment is also growing at a rapid pace. Meanwhile, forward bookings are proving strong going into the summer. As such, management is expecting better yields for the year ahead. This should all help its top line. At the same time, its bottom line is expected to improve as the price of oil continues to fall. With more refineries coming online, jet fuel should follow in tandem.
As a result, Peel Hunt rates the stock a ‘buy’ with a price target of £5.50, presenting it with a 45% potential upside. Therefore, I’ll be adding these growth shares to my portfolio when I’ve got more spare cash.
John Choong has no position in easyJet or Peel Hunt.
What it does: 4imprint Group is a direct marketer of promotional merchandise operating in North America and the UK.
By Ben McPoland. 4imprint Group (LSE: FOUR) is a company on a roll. The FTSE 250-listed firm recently announced it expects profit for the current financial year to be at the top end of both analysts’ and its own forecasts. That is pre-tax profit of at least $90m from group revenue of $1.1bn.
Despite being a leading promotional product distributor in the US, its market share there is still in the low-to-mid single digits. This leaves a very large and addressable target market (around $20bn). And that’s just in the US, never mind the opportunity to enter further international markets.
4imprint is a high-quality business in a growing but fragmented market. It has a strong balance sheet and long-term management. In fact, the CEO has been at the company for 30 years.
One risk is that the stock is near its all-time high, which could create valuation risk if the market drops in the near future.
Ben McPoland does not own shares of 4imprint Group.
What it does: Future is a specialty media company that owns print and digital magazines, and websites.
By James J. McCombie: Future (LSE: FUTR) has grown its annual revenues by 58% on average over the last five years. This success has been earned by acquiring titles and brands and using the company’s platform and expertise to maximise advertising, e-commerce affiliate, and sales and subscription revenue from the content it publishes.
It is a remarkably efficient company, with operating margins at 23% for 2021, and generates plenty of free cash flow. That helps explains why net debt is 2.6 times operating income, which — for an acquisition-heavy business — is modest.
Future trades at a P/E ratio of 8, because its share price has been sliding for a while. Results have been good, but investors are rightly worried that the CEO that turned the company around plans to step down by the end of 2023. However, the model for success is ingrained in the business and a new CEO should be able to copy it.
James J. McCombie does not own shares in Future
What it does: Ashtead is an international equipment rental company that operates in the US, the UK, and Canada.
By Edward Sheldon, CFA. There are two main reasons I’ve selected Ashtead (LSE: AHT) as my top growth shares for January. The first is that the company has a lot of momentum right now. This is illustrated by the fact that last month, the company raised its guidance for the year ending 30 April 2023 and increased its interim dividend by a huge 20%.
The second is that the company is well positioned to benefit from supply chain onshoring in the US (the building of semiconductor manufacturing plants, etc.). Currently, it generates over 80% of its revenues from the US.
The biggest risk here, in my view, is a sharp economic downturn in the US. If the country was to fall into a deep recession, and construction came to a halt, Ashtead could suffer. Debt, which has risen in recent years, is another risk to consider.
I’m comfortable with these risks, however. Overall, I like the risk/reward skew.
Edward Sheldon owns shares in Ashtead
What it does: YouGov is an international online research data and analytics technology group.
By G A Chester. The YouGov (LSE: YOU) share price reached an all-time high of 1,600p just over a year ago. It’s suffered since, in an indiscriminate sell-off of high-growth tech stocks.
However, business performance has continued to impress. Results for the year ended 31 July showed underlying revenue growth of 20% and growth in underlying operating profit of 33%. The operating margin was 16.4% and has expanded every year for the last five years.
I fully expect ongoing margin expansion to continue turbo-charging profit growth at a higher rate than revenue growth. And with the shares now at a steep discount, I see an opportunity to buy into a high-quality growth company at a reasonable price.
A near-term risk is that the current challenging external environment could yet negatively impact the business. However, management said in October it’s “cautiously optimistic” and I’m hopeful this will be confirmed in a half-year trading update later this month.
G A Chester does not own shares in YouGov.
The Motley Fool UK has recommended Focusrite Plc, Future Plc, and YouGov Plc. 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 2023