I’ve been looking for stocks to buy. And one recent addition to my portfolio is waste-to-product company Renewi (LSE: RWI).
With the share price near 785p, the FTSE Small Cap business has a market capitalisation of around £622m. And that’s well above my self-imposed lower limit of £100m.
Room to grow
I like investing in small-cap companies because they often have more room to grow over time. However, I’m not keen on the extra risks and volatility that often come with the tiniest stock market constituents.
On 14 July, Renewi released an upbeat first-quarter trading statement. In the three months to 30 June, revenue and earnings were ahead of the prior year just as the directors had previously expected.
One risk is that the business has a history of lumpy earnings with rises in some years and declines in others. And City analysts expect that pattern to continue. There’s also a fair amount of debt on the balance sheet.
However, revenue looks set to continue its steady rise. And I reckon the firm operates in an attractive sector, given the environmental concerns of the modern world.
Meanwhile, the forward-looking earnings multiple is running around 10 for the trading year to March 2024. I think that valuation looks fair rather than cheap.
At the other end of the scale, I bought some shares in the FTSE 100 banking and financial services company HSBC (LSE: HSBA). With the share price near 517p, the market capitalisation is around £105bn.
Earnings look set to surge
Bank stocks can act as early predictors of recessions and downturns. Their share prices are often among the first to plunge. However, HSBC has been range-bound for most of 2022. And my bet is the price would probably have already plunged if it was going to in the current economic environment.
Earnings have been holding up well. And after a single-digit decline in 2022, City analysts predict a strong double-digit advance in 2023.
It’s always possible for any company to miss its estimates. But I’m hopeful that the market will look more favourably upon HSBC if the economic and geopolitical storm clouds clear in the years ahead. Meanwhile, the valuation looks attractive to me with the dividend yield running just above 5% for the current year.
The third recent addition to my share account is software specialist Netcall (LSE: NET). With the share price near 85p, the market capitalisation is around £131m. And the business can be found in the FTSE AIM ALL-SHARE index.
Fast growth, racy valuation
This is a fast-growing proposition with a racy valuation to match. City analysts expect earnings to shoot up by more than 30% in the current trading year to June 2023. And the forward-looking earnings multiple is running near 34.
I accept that a high valuation brings additional risks. If the company runs into an operational setback and misses its estimates, the share price could plunge. However, on 20 July, Netcall issued a trading update with the headline: “Strong demand driving results above FY22 market expectations”.
There are no guarantees of a positive long-term investment outcome with any of these companies. But, for the time being, things look positive.
My plan is to hold the stocks for years as the market recovers and operational progress unfolds in each enterprise.