Every month, we ask our freelance writers to share their top ideas for growth stocks with investors — here’s what they said for May!
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Ashtead
What it does: Ashtead is a construction equipment rental company that operates in the US, Canada, and the UK.
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By Edward Sheldon, CFA. I’m bullish on Ashtead (LSE: AHT) for a couple of reasons right now.
One reason is that the company is well positioned to benefit from the artificial intelligence (AI) boom. In the years ahead, major semiconductor companies such as Taiwan Semiconductor, Samsung, and Intel are going to be building a lot of new manufacturing plants in the US to handle the demand for AI chips. This construction boom should provide a very supportive backdrop for Ashtead, whose equipment is likely to be in high demand.
Another reason I like the stock is that its valuation is quite reasonable. Currently, the forward-looking price-to-earnings (P/E) ratio is 17. I think that’s attractive given the long-term growth story associated with the building of chip plants and other infrastructure.
Now, one risk to be aware of here is that Ashtead has some debt on its balance sheet. This debt could come into focus if interest rates rise from here, putting pressure on the share price.
All things considered, however, I think the risk/reward proposition is attractive.
Edward Sheldon owns shares in Ashtead.
Bodycote
What it does: provides heat treatment and thermal processing services to the aerospace, defence, energy, automotive and industrial sectors.
By Kevin Godbold. Bodycote (LSE: BOY) posted full-year figures for 2023 showing growth in revenue, cash flow and earnings. To reward shareholders, the directors slapped 7% on the dividend and initiated a £60m share buyback programme.
Trading is going well and the cash is rolling in. The share price has been trending higher since last October, and City analysts pencilled in double-digit percentage earnings increases for 2024 and 2025.
Cost pressures have been easing for the business and the directors said they are “confident” in the firm’s prospects for ongoing profitable growth.
One risk, however, is cyclicality. That has shown up as volatility in the multi-year record for earnings and in a variable valuation. Previously, the stock has been prominent as a high dividend payer because of its suppressed valuation.
The multi-year dividend record is robust, and the yield well above 3% (24 April) is a good companion to the company’s enhanced growth prospects now.
Kevin Godbold does not own shares in Bodycote.
Kainos Group
What it does: This tech company offers digital services and Workday tools to support businesses across the world.
By Oliver Rodzianko. After growing rapidly from 2020 to 2023, Kainos Group (LSE:KNOS) has slowed down slightly now. However, its long-term outlook still looks bright, and analysts expect things to pick up considerably in 2025.
The reason I’m excited about the growth slowdown is that I think the market has overreacted to this. The shares are down over 55% from their all-time high as I write. That means I might be buying the stellar growth that can come with a leading British tech company at a valuation the industry rarely presents.
Kainos is a leader in digital transformation. However, my main concern is that it hasn’t developed anything truly groundbreaking in the field yet. That means it could be more vulnerable to competition.
Nonetheless, with multiple areas of competency, including in Workday implementation for businesses, I think this tech firm has a strong future ahead of it.
Oliver Rodzianko does not own shares in Kainos.
On the Beach
What it does: On the Beach is one of the UK’s leading online retailers of short-haul beach holidays.
By Paul Summers. Shares in holiday firm On the Beach (LSE: OTB) may have fallen back in 2024, but I’m optimistic we could see the beginning of a reversal when interim results are released next month.
Having experienced its “best ever summer” in 2023, the company began its new financial year with “a record forward order book and significant momentum”. A recent partnership with Ryanair also bodes well and could push some analysts to revise their projections.
Of course, ongoing geopolitical tensions aren’t exactly helpful to any firm in the travel sector. The risk here is that things get worse before they get better.
Then again, the stock already changes hands for just 10 times forecast earnings. Notwithstanding the bias that comes with already being invested, that looks too cheap to me.
When discretionary income rises as interest rates are cut, I’m optimistic my patience will pay off.
Paul Summers owns shares in On the Beach
