Every month, we ask our freelance investor writers to share with you their top growth stock ideas – here’s what they had to say for October![Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
What it does: ASOS is an online fashion retailer comprising 17 different brands. Operates all over the world.
By Andrew Woods. My growth stock pick for October is ASOS (LSE:ASC). For the years ending in August, between 2017 and 2021, earnings per share (EPS) increased from 77.2 pence to 128.9 pence. During this period, the company had an EPS compound annual growth rate of 10.8%. I consider that to be consistent and strong.
However, ASOS has been operating in a challenging environment for the retail sector in general. With the cost of living crisis hitting, customers have had less disposable income to spend on clothing. Inflation has also led to shrinking profit margins, as wages and costs rise. The share price reflects these problems, having fallen 82% in the last year.
Despite this, sales improved over the summer and the company expects full-year earnings to be within the initial guidance range. Another indication that the company is in decent financial condition is its low levels of debt. This means that it is potentially well positioned to work on expansion as we come out of the pandemic.
Andrew Woods does not have a position at ASOS.
What it does: Kainos is an IT support services company that helps businesses, organizations, and governments digitize their operations.
By Zaven Boyrazian. Kainos Group (LSE:KNOS) helps its clients digitize operations and implement human capital management solutions through its partnership with Workday. The group serves the public and private sectors, its most notable collaboration being with the National Health Service.
Despite record double-digit organic sales growth, the stock has lost almost a third of its market capitalization in the past 12 months. It seems that the recent drop in profit margins has spooked some investors. And given that the stock trades at a hefty premium of 47 times earnings, this volatility is not surprising.
The drop in profitability stems from the steadily abating tailwinds of the pandemic rather than internal issues. Meanwhile, demand for Kainos’ services continues to grow with bookings reaching a record level of £349.8 million.
While it is frustrating to see profitability falter, the underlying business remains intact. And with an impressive amount of potential, I think the recent downward trajectory presents an attractive buying opportunity, even if the stock still looks expensive.
Zaven Boyrazian does not own shares in Kainos or Workday.
What it does: Halma is a collection of businesses focused on industrial safety, environmental monitoring, and life sciences.
By Stephen Wright. I have been buying shares in halma (LSE:HLMA) during the last month. So I’m putting my money where my mouth is on this one.
The reason I started investing in this stock is because I think it is finally trading at an attractive price. The company has always seemed excellent to me, but expensive.
Halma has a simple trading strategy. Try to acquire businesses and use the cash they generate to buy more businesses.
The company also has a decentralized corporate culture. In other words, let individual companies get on with what they do well.
Halma’s share price recently fell below £20 per share. At those prices, I think it’s a great buy.
If the stock hits that price again in October, I’ll be looking to increase my investment significantly. But I think Halma is a great company that I am happy to have shares in.
Stephen Wright owns shares in Halma.
What it does: Spire Healthcare provides private healthcare services in the UK through 39 hospitals and eight clinics.
By Royston Wild. The resilience of health care spending means that actions like needle health (LSE: SPI) are popular choices during tough economic times like these.
Theoretically, Spire’s turnover could take a hit as the British begin to feel the pressure. As times get tough, people might be tempted to wait a little longer to get treatment and get it for free on the NHS.
But the size of NHS waiting lists today means that the demand for private care continues to rise sharply. At Spire, revenue was up 7% in the six months through June, as private revenue rose nearly 22% year over year.
A record 6.8 million people were on NHS waiting lists in September. And the Institute for Fiscal Studies thinks the number will get worse before it gets better, possibly reaching 10.8 million people in 2024 before slowly falling.
This explains why City analysts believe Spire will report healthy earnings growth in the short to medium term. It is expected to turn from a loss of 7.1 pence per share in 2021 to a profit of 4.4 pence this year. And in 2023 earnings are forecast to double to 8.8 pence.
Royston Wild owns shares in Spire Healthcare.
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage Investment Trust is one of the world’s largest and most famous trust funds. The Baillie Gifford & Co fund invests around the world and looks for strong companies with above-average returns.
By John Choong. Weather Scottish Mortgage Investment Trust (LSE:SMT) has been an atrocious performer so far this year, investors are being told to expect a five-year return. As such, the current slump could pave the way for a monumental recovery when the global economy finally recovers.
The trust’s main holdings are mostly growth stocks, such as modern Y Tesla have plenty of upside to your earnings over the next decade and could help boost the stock price. Also, Scottish Mortgage has a pretty healthy exposure to China. As the world’s second-largest economy reopens after its Covid-19 lockdowns, Chinese stocks are seeing strong rallies, and Scottish Mortgage is expected to benefit from that to some extent.
Either way, with its share price nearly 50% below its all-time high, this could be an opportune time to start a long position in a fund with historical success. That said, investors should beware that further lockdowns in China could prolong their path to recovery.
John Choong has no role at Scottish Mortgage Investment Trust.
Smithson Investment Trust
What it does: Smithson is a global investment trust managed by Fundsmith. Invests in high-quality, small- and mid-cap growth stocks.
By Edward Sheldon, CFA. by smithson (LSE: SSON) Stock price has been hit hard in 2022 as growth stocks have fallen out of favor and I think this has presented a buying opportunity. The investment trust is currently trading at a significant discount to its net asset value (NAV).
I like Smithson’s investment approach. As his older brother, Fundsmith Equity, normally invests in companies that are very profitable. In the meantime, avoid companies that are heavily leveraged, as well as those in rapidly changing industries. Names in the portfolio at the end of August included UK property website powerhouse right movemedical technology company masimoand cybersecurity specialist fortnite – all large companies.
It’s worth noting that Smithson’s portfolio is quite concentrated. Therefore, the specific risk of the shares is quite high. If a handful of stocks in the portfolio underperformed, the overall performance could be significantly affected. I am comfortable with this risk, however. I think Smithson is a good way to get exposure to smaller growth companies that are traded internationally.
Edward Sheldon has positions in Smithson Investment Trust, Rightmove and Fundsmith Equity.
What it does: Hargreaves Lansdown is a UK-based digital wealth management service provider.
By Paul Summers: The stock price of Hargreaves Lansdown (LSE: HL) has been in terrible form in 2022 and it’s not hard to see why.
At a time when most people are just trying to pay their energy bills, it was inevitable that the company’s revenue would suffer. Combine this with a reduction in new business and assets under management and the 35% drop, while severe, makes some sense.
Still, I think this is shaping up to be an attractive counter move. A P/E ratio of 17 is not extremely cheap, but it seems a very attractive price for a company that generates some of the highest margins in the FTSE 100. In addition, the desire of many to take more control on your finances will surely prove to be a decent growth engine for years to come.
Meanwhile, a 4.7% yield forecast is in the offing.
Paul Summers has no post at Hargreaves Lansdown