Here are three I believe are worthy of investment this month.

Team 17

A market darling during the pandemic, indie video game developer Team 17 (LSE: TM17) is now very much unloved. The AIM stock’s share price has halved in 2022 to date. Personally, I see this as an opportunity.

Back in March, the company announced record results. Following the release of 12 new games in 2021, revenue rose 9% to £90.5m. Pre-tax profit was up 11% to £29.1m.

A risk with any developer is that what they produce has no guarantee of proving popular. Moreover, the rise in the cost-of-living combined with wage inflation is expected to increase costs this year by roughly £1.7m. Revenues are also expected to be hit by around £4m due to the Ukraine/Russia war.

However, the balance sheet looks strong and a number of recent acquisitions are expected to be “immediately earnings accretive” in 2022.

At 17 times forecast earnings, I think Team17 looks a great buy.

SDI

Scientific and tech product producer SDI (LSE: SDI) is an AIM stock I’ve had on my watchlist for some time now. The reason I haven’t been buying is that the valuation has always looked full. However, the company is now getting much closer to entering my ‘buy zone’.

Sure, it’s still not cheap. The shares currently change hands for 19 times earnings. So there’s a chance we might not have seen the bottom yet if economic fears worsen. There’s also no dividend stream to compensate me while I await a recovery.

Full-year numbers are due on 18 July. Based on its most recent trading update, I think these should be pretty stellar. A couple of months ago, SDI said revenues and profits were expected to “materially exceed current market expectations“. Not many businesses are saying that right now!

Consequently, I’d be comfortable buying now.

Strix

A final AIM stock I think is worthy of investment in Juy is one I already own: kettle safety control supplier Strix (LSE: KETL). This is despite seeing all my paper profits evaporate in 2022. The shares are down almost 45% this year.

Still, the fact that I’m a long-term investor means my glass is always half-full. Having arguably got a little frothy last year, the company’s valuation has now returned to a more reasonable level. Shares now trade at 11 times forecast earnings and come with a 5.2% dividend yield.

In May, Strix announced it was “maintaining expectations for the full year“, based on trading in 2022 so far. Product price increases across its entire range have been “successfully implemented” in the face of higher inflation. And manufacturing operations in China have not been severely impacted by the resurgence of Covid-19. That doesn’t exactly sound like a company in crisis to me.

I’m very tempted to top up at this level.

Here are three companies that all feature on my shopping list to begin snapping up today.

Focusrite

The share price of global music and audio equipment firm Focusrite (LSE: TUNE) has had a pretty shocking year, so far. Priced at 950p, as I type, the stock is down 32% in value since the beginning of January.

At least some of this tumble makes sense. The AIM-listed company was one of the few beneficiaries of the multiple UK lockdowns. Now that we’ve regained our freedom, demand isn’t quite so robust. Recent half-year results revealed a 2.5% fall in group revenue to £92.9m.

Sure, galloping inflation and component supply issues haven’t exactly helped. The risk here is that these continue to impede progress for a while.

Still, it’s worth noting that the company is making far more money than it was pre-pandemic. The rise in content creation and recovery in live events also bode well for Focusrite’s earnings outlook.

Having once traded well above 30 times forecast earnings, shares now change hands for a much-more-reasonable P/E of 18. I suspect opening a position now could prove lucrative for me in the medium term.

CVS Group

Another growth share I might begin buying is veterinary services provider CVS Group (LSE: CVGS). The shares might not have had such a bad 2022 compared to Focusrite. Nevertheless, an 18% reduction is still significant.

In my opinion, CVS has great defensive qualities. I reckon the vast majority of pet owners won’t be cutting down on how much money they spend on their furry (and not so furry) companions, even as prices rise. This becomes even more likely when it concerns the latter’s health.

The jump in pet ownership — and the fact that many of these animals will be family members for many years — should also mean earnings keep growing.

Naturally, at least some of this is already reflected in CVG Group’s valuation of 20 times forecast FY23 earnings. That’s not cheap and there’s a chance the shares could dip lower if global markets continue to wobble. However, I’m tempted to begin nibbling now.

SDI

A final growth share I’ll highlight is SDI Group (LSE: SDI). Of the three mentioned here, its share price has performed the best in 2022. This is not to say that the 16% fall has been easy for existing holders to bear.

SDI designs and manufactures scientific products for use in digital imaging and sensing. That doesn’t strike me as cyclical work. In fact, this month’s trading update shows just how well the small-cap is doing.

The company expects both revenues and profits for the last financial year to “materially exceed current market expectations“. Chairman Ken Ford also believes SDI’s acquisition strategy and commitment to ongoing investment should make FY2023 its “best year yet“.

Naturally, no investment is without risk. My biggest issue here is that the valuation (20 times earnings) is fairly high compared to industry peers

For a company that’s consistently grown annual earnings for quite a while now, I think it’s a risk worth taking.

Top growth stocks

So which ‘no-brainer’ growth stocks would I consider buying in February? At the top of my list right now is a small medical equipment provider called SDI Group (LSE:SDI). It focuses on digital imaging and sensor products. What I like about this Cambridge-based business is its strategy. It aims to grow by buying smaller, niche and high-margin businesses. By allowing them to operate somewhat independently, SDI can respond quickly to new trends and events. It’s a strategy that seems to be working. Sales have tripled over the past five years, while profits have grown six-fold.

Bear in mind that to continue above-average growth it will need to keep finding new businesses to buy. That can take time so I might need to be a patient investor. And acquisitions can be risky too if they don’t work out. But with a profit margin and return on capital both above 20%, I’d say this is a high-quality business. For me, mixing growth and quality characteristics is a winning combination and I’d be happy to add it to my Stocks and Shares ISA.

TV and Movies

The next top growth stock I’d buy in February is Zoo Digital (LSE:ZOO). With a market capitalisation of just £125m, it’s firmly in the small-cap group. But what it lacks in size, it makes up for in potential. Zoo provides media services to the global entertainment industry. For instance, it provides a host of services including subtitling and dubbing to adapt TV and movie content to global audiences.

Major global streaming giants like Netflix continue to create more content for its subscribers. Global content spend has reached record levels and is forecast to rise further over the coming years. It’s creating volumes of TV material that needs to be prepared for distribution in many countries and languages, resulting in more demand for Zoo’s services.

An exciting growth story

It’s not just Netflix either. WarnerMedia, NBCUniversal and ViacomCBS have all launched streaming video platforms in the US and they’re expected to expand internationally in 2022. I reckon all of this new original content bodes well for Zoo over the coming years.

A word of warning, though. The profit margin is relatively slim at under 3%. I’d like Zoo to focus on growing that number. A greater margin could provide more of a buffer. Also, as the market grows it could invite stronger competitors. Zoo will need to stay on its toes to keep up.

That said, Zoo recently reported a strong trading performance, and it expects revenues for the year to be ahead of analyst expectations. Also, it’s encouraging that it has been appointed as a primary vendor for an upcoming European launch of a streaming video service. This is likely to raise sales further. Overall, the future looks bright for it in my opinion and I’d buy this growth stock today.

My top three have a market capitalisation of just £200m to £300m. This is pretty small compared to the relative giants of the FTSE 100. But smaller companies can offer great potential. I frequently see shares of small firms double or triple over a few years. That would be difficult for a large company like BP, in my opinion.

Granted, investing in smaller growth stocks can be riskier. Often their share prices can be more volatile. Sometimes their shares are more illiquid. This can amplify movements up and down. Also, small companies are still growing and can often face short-term hurdles and hiccups.

Overall, I hold a diversified selection of companies in my Stocks and Shares ISA. As I have a reasonably long investment time frame, I own several growth stocks. But I also own shares that have styles spanning value, defensive, income, and momentum.

A supreme leader

Often, companies have characteristics that share multiple styles. For instance, a growth share could also demonstrate defensive qualities. One such share I’d consider buying for 2022 is a relatively small company called Supreme (LSE:SUP). Supreme is a manufacturer and brand owner of several consumer goods. Its main business areas are batteries, lighting, vaping, and sports nutrition.

There is much to like about Supreme. It’s run by competent management, in my opinion. CEO Sandy Chadha offers an owner’s mindset. I’m also encouraged that he has ‘skin in the game’ and owns 57% of the shares. Sandy started in the company from school and grew the business from £1m to over £90m of revenues over a few decades. Starting with batteries, Supreme became a major supplier to the big discounters including B&M and Home Bargains. Using these customer relationships, Supreme was able to expand into the lighting business, then into the fast-growing vaping space.

I’d say it benefits from a great business model. By creating brands from scratch and manufacturing in-house, it can keep its costs low and profit margin high. This allows it to sell particularly good value products that are popular with customers. The plan seems to be working. Sales have grown by 14% per year on average over the past three years. All while achieving an impressive gross profit margin of 30%.

I do have to bear in mind that Supreme’s largest 10 customers account for over half of the group’s sales. If any of these customers decide to stop or reduce orders, it could have a material impact. That said, many of the brands are only sold by Supreme and some of its relationships span over 30 years.

Overall, I reckon the future looks bright for Supreme. It’s expanding into new areas and doing so at low cost. I’d be happy to buy shares in this British growth stock for my portfolio.

Laser-focused growth stocks

Next on my list of growth stocks for 2022 is an AIM-listed company called Somero Enterprises (LSE:SOM). This £280m business manufactures laser-guided equipment that’s used to make perfectly level concrete floors. Yes, it might seem quite random. But I’d say that this niche business is a high-quality growth share with some remarkable characteristics.

It offers a return on capital employed of almost 60% and an operating margin of over 30%. These are some of the best quality metrics that I’ve come across recently. But it doesn’t end there. Usually these factors result in a more expensive share. But I can buy Somero for a price-to-earnings-ratio of just 11 times. I reckon that’s cheap.

Earnings are growing steadily and it recently noted strong trading momentum. It also seems to be well-placed in growing markets. For instance, its equipment is used to create flat floors for large warehouses and multi-storey data centres. I reckon demand for these could continue for some time.

Somero does operate in a cyclical market. There’s ample business when the economy is strong, but this can potentially reverse in a recession. The shares could be volatile at times too so that’s something I should consider. That said, it currently has a forecasted dividend yield of 7%. This should provide some buffer to share price turbulence. All in all, I’m a buyer.

Small but mighty

My third British growth stock is the smallest of the three. It’s called SDI (LSE:SDI) and it has a market capitalisation of just under £200m. SDI (formally known as Scientific Digital Imaging) designs and manufactures scientific and technology products. It focuses on two main areas, digital imaging and sensors.

SDI has demonstrated strong financial growth for several years. It has shown average annual sales growth of 33% over the past five years. That’s impressive. Its profits have been equally as impressive. So what’s driving the great performance? Well, SDI has a buy-and-build strategy. What I mean by this is it looks to purchase profitable companies within its niche areas of expertise. It then creates an environment for these typically smaller companies to flourish.

Business is growing nicely at this AIM listed group. It recently reported “another strong set of results and solid operational progress for the six months to 31 October 2021”.

Acquiring companies does come with risk. There is much that can go wrong. That said, SDI seems to have a decent track record. This somewhat mitigates acquisition risk. One more thing. With a price-to-earnings ratio of 34, the shares do not look particularly cheap. But I’d say that’s not unusual for quality growth stocks.

Overall, I like what I see. A good-quality small business with a proven model of successfully buying smaller companies. If it can continue doing so for at the least the next few years, I reckon its share price could potentially double.

Today, the company announced yet another set of record numbers for the first half of its financial year. 

Profits jump!

Revenue increased 19% to a little over £737m in the six months to the end of September as the company “performed well in all sectors and major regions“. Adjusted for foreign exchange fluctuations, the growth rate comes in at 23%.

Halma’s bottom line was even better. Statutory pre-tax profit jumped a heady 74% to £167.5m, albeit boosted by the sale of its security systems business (Texecom) for £34m. 

As if this wasn’t good enough, the company also decided to leave its full-year guidance unchanged despite rising costs and “increased supply chain, logistics and labour market disruption”. Other FTSE 100 constituents can’t afford to be quite so optimistic.

This is not to say today’s statement was devoid of caution. For example, Halma noted that “more typical rates of revenue growth” were expected in the second half. This may help explain why the shares were off almost 2% this morning. 

FTSE 100 quality stock

Based on this update and the long-term performance of its share price, I’d buy a slice of Halma today. The company operates in a highly defensive sector that should continue growing, regardless of the wider economic environment. As a global business, earnings are nicely diversified and there’s little in the way of debt on the balance sheet.

It’s also worth mentioning the dividends. A forecast yield of 0.6% won’t attract income seekers. However, Halma has grown its annual payout by 5% or more for 42 consecutive years. That sort of trend is only seen in businesses of the highest quality. With a “healthy acquisition pipeline“, I can’t see it ending anytime soon. 

The only real concern I have rests on the valuation. A forecast P/E of almost 50 is extremely rich. As such, I wouldn’t be going ‘all in’ on this FTSE 100 stock now. Picking up bigger chunks of HLMA when markets are crashing would be the dream scenario.

From little acorns

Of course, Halma isn’t the only attractive ‘buy and hold’ option out there. Small-cap SDI (LSE: SDI) is another quality stock I’d snap up. The firm designs and manufactures digital imaging products for fields as diverse as life sciences, healthcare, astronomy and art conservation. And, right now, business is booming.

Earlier this month, the AIM-listed company said it expects to report “very strong sales and profits” for the first half of its current financial year. As a result, full-year revenue of £45m and adjusted pre-tax profit of £9.2m have been forecast. Encouragingly, both numbers were higher than what analysts had been predicting. 

On the downside, SDI shares aren’t cheap. A P/E of 30 suggests there’s little room for error. Especially as management already expects the heavy demand seen for its Atik cameras over the pandemic to reduce. Once again, supply chain pressures are a potential headwind.

Still, I’m confident this could become another multi-bagging stock by 2030 if recent progress is anything to go by. I regard SDI as a buy today. But I’d really get stuck in when markets next wobble.  

Rupert Hargreaves: Braemar Shipping Services 

Braemar Shipping Services (LSE: BMS) is an international shipbroker and shipping services provider. Its exposure to seaborne trade suggests the company is highly leveraged to the global economic recovery. Indeed, analysts reckon group earnings per share will increase 40% this fiscal year. 

Based on these projections, the stock looks cheap trading at a forward price-to-earnings (P/E) multiple of 12.8. 

The company’s valuation and growth potential are the reasons why I’d buy Braemar as a recovery stock in July. 

That said, if the economic recovery fails to live up to expectations, Braemar may be one of the first to suffer. As such, this investment has quite a high level of risk. 

Rupert Hargreaves does not own shares in Braemar Shipping Services.

Edward Sheldon: Keystone Law

My top small-cap stock is Keystone Law (LSE: KEYS). It’s an innovative, platform-based law firm that’s disrupting the UK legal industry. Last year, it won ‘Law Firm of the Year’ at The Lawyer Awards.  

Keystone has generated strong revenue and profit growth in recent years and I expect it to continue doing so in the years ahead. In the short term, the company should benefit as the UK reopens and economic activity picks up. In the long run, the expansion of its platform should drive top- and bottom-line growth higher.

One thing to be aware of is that the stock’s valuation is quite high. This adds risk to the investment case. Overall, however, I think the risk/reward proposition here is attractive.

Edward Sheldon owns shares in Keystone Law

Harshil Patel: Cake Box Holdings 

Cake Box Holdings (LSE:CBOX) is a specialist retailer of fresh cream cakes. It’s a franchise business and delivers most of its growth by opening new stores.  

So it’s encouraging to see a strong pipeline of new locations. It currently has 157 franchised stores and another 18-24 are expected this year. It’s also trialing several kiosks with a national supermarket. 

At some point, locations could become saturated and an optimum number of stores will be reached. That said, there’s currently plenty of eligible franchise applicants and potential locations to keep Cake Box growing.  

Overall, Cake Box is a quality company led by entrepreneurial management. I like that it offers double-digit earnings growth and strong margins. Its balance sheet looks strong and even offers a well-covered dividend. 

Harshil Patel owns shares in Cake Box Holdings.

Tom Rodgers: SCS

With home refurbishment markets booming, sofa manufacturer SCS Group (LSE:SCS) is my top small-cap stock for July 2021. The £116m market cap firm has produced operating profit growth of 30.6% in the last 12 months as sales and profits surge post-lockdown. Dividends are expected to return in force, as high as 12p per share for 2022, offering substantial future income even after a 40% rise in the share price in the year to date. A forward P/E of 11 times earnings is cheap and I see more upside for July and beyond.

Tom has no position in SCS at time of writing.

G A Chester: B.P. Marsh & Partners 

Founded in 1990, and still founder-led, B.P. Marsh & Partners (LSE: BPM) is a specialist private equity investor in early stage financial services businesses. There’s higher risk with fledgling businesses, but the company has an impressive long-term record of growing its net asset value (NAV). It reported another year of growth last month, with NAV up £13m to £150m. 

The stock is currently priced with a market capitalisation around £120m. In other words, at a 20% discount to NAV. Given the company’s track record of delivering strong shareholder returns (including dividends), and the growth prospects of its investee businesses, I think there’s exceptional value on offer here. 

G A Chester has no position in B.P. Marsh & Partners.

Zaven Boyrazian: Bioventix 

Bioventix (LSE:BVXP) is a biotech company that manufactures specialised antibodies for blood testing. It’s a niche product. But remains an essential ingredient for diagnosing almost every type of disease – including Covid-19.

The firm generates revenue from direct sales to in-vitro diagnostic companies and royalties from any product developed using its propriety material. The latter has yet to evolve into a substantial source of income. But it does provide the facility for a recurring revenue stream in the future.

Bioventix operates in a highly regulated industry. This undoubtedly adds some operational risks. Suppose the firm or any of its royalty-generating customers fail to comply with regulations. In that case, its reputation and income could be compromised. But personally, I think the potential reward is worth the risk.

Zaven Boyrazian does not own shares in Bioventix.

Roland Head: Vertu Motors

Car dealership group Vertu Motors (LSE: VTU) is one of the UK’s largest motor retailers, with brands including Bristol Street Motors. Vertu says that demand for used cars is “exceptional” at the moment. The latest update from the company revealed strong trading and triggered an upgrade to profit forecasts.

The main risk flagged by the company is that the global chip shortage will cause delays to new car deliveries. However, Vertu’s share price is covered by the value of the group’s property portfolio, and the business currently trades on just seven times forecast earnings. Brokers are also forecasting a useful 3.6% dividend yield this year.

In my view, Vertu looks like a good, cheap, small-cap stock. I recently added the shares to my portfolio.

Roland Head owns shares of Vertu Motors.

Paul Summers: SDI Group

Having multi-bagged over the last year, shares in shares in scientific product maker SDI Group (LSE: SCI) look expensive. However, I suspect they could eventually be worth a lot more thanks to an acquisition-focused growth strategy similar to that of FTSE 100 top stock Halma.

There could even be more upside in July. The company stated in May that it would exceed previous estimates on FY21 revenue and adjusted pre-tax profit (given in February). I wonder if trading since then, combined with the lifting of restrictions, will lead management to also upgrade its FY22 guidance later this month.

Paul Summers has no position in SDI Group or Halma.

Christopher Ruane: M&C Saatchi

Things have been looking up for the previously troubled advertising small-cap stock M&C Saatchi (LSE: SAA).

The shares are up 156% already over the past year. For a company whose survival was in question at one point, that is impressive. But I see further possible gains ahead. The advertising market generally is buoyant. M&C Saatchi is poised to benefit from that. The company recently lifted its forecast for the year.

The company’s reputation remains tarnished, though, which could act as a dampener on growth.

Christopher Ruane does not own shares in M&C Saatchi.

Royston Wild: Begbies Traynor 

The British government’s furlough schemes have helped keep a lid on insolvency rates during the pandemic. But with these financial support programmes set to end, I think now could be a good time to invest in Begbies Traynor Group (LSE: BEG). 

Indeed, buying this UK share before full-year results are released on Tuesday 20 July could be a very good idea. Despite a depressed insolvency market Begbies Traynor said in May that full-year revenues would grow ahead of market expectations following a strong fourth-quarter performance. News that trading has remained robust in the new financial period (to April 2022) could help lift the small cap again following recent share price weakness.

At current prices Begbies Traynor trades on a rock-bottom forward price-to-earnings (PEG) ratio of 0.4. This provides plenty of scope for a fresh move higher.

Royston Wild does not own shares in Begbies Traynor. 

SDI

SDI (LSE: SDI) designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications. Like FTSE 100 health and safety giant Halma, it’s actually a collection of businesses that all contribute to the bottom line. The shares are up over 300% in the last 12 months! That’s despite the business being impacted by Covid-19-related shutdowns.  

Full-year (FY21) numbers are due in mid-July. Based on what the company had to say in May, I don’t think those already invested need to worry. 

In its most recent update, SDI said that revenue and adjusted pre-tax profit of roughly £35.3m and £7.4m, respectively, would likely be reported next month. Importantly, these were improved estimates from those given in February thanks to “robust” sales in March and April. This is impressive considering the company had reported that it would already exceed analyst predictions two months earlier.

Any drawbacks? Well, the shares don’t scream value. A forecast price-to-earnings (P/E) figure of just under 30 means that SDI has its work cut out to keep impressing the market. Then again, I do wonder if management’s decision to not change its expectations on FY22 despite recent momentum could see it surprising on the upside next month. After all, the lifting of restrictions will surely allow the company to pick up even more business in the months ahead.

Regardless, an investor like me shouldn’t let a single report on trading dictate whether I buy or not. As such, I’d be happy to start buying this small-cap stock today. 

Agronomics

Alternative food companies are hot right now. In the US, stocks such as Beyond Meat have grabbed investors’ attention, as has the recent (successful) listing of Oatly.

As a UK investor, I’m not exactly spoilt for choice in this area. However, one option I like is Agronomics (LSE: ANIC). It’s focused on owning companies that specialise in cultivated meat. This is grown in a lab from cells rather than taken from slaughtered animals.

In addition to addressing concerns about animal welfare, this process is far more environmentally friendly. As things stand, almost 50% of the water used in the US goes on raising animals for food. They also consume 80% of all antibiotics due to being kept in less-than-ideal conditions.

Agronomics believes its companies (including Blue Nalu and Mosa Meat) will help disrupt the $7.3trn global meat, poultry and seafood market. That’s a bold claim and I suspect getting people to eat ‘clean’ won’t be a smooth process. The fact that it’s a small-cap stock also means the share price could be volatile. It’s already down over a third in value since hitting a high of 37p only last month.

Notwithstanding this, I do find the investment case pretty compelling. The fact that Richard Read (founder of Innocent drinks) and entrepreneur Jim Mellon are on the board is particularly encouraging.

Like SDI, I’m not sure I’d go ‘all in’ right now. However, I’d have no trouble taking a small stake in Agronomics today. 

SDI Group (LSE: SDI) makes scientific and technology products for digital imaging and other applications. The SDI share price is up by 25% today following an upgrade to guidance. Today’s gain means the shares have doubled over the last 12 months.

I’d like more technology exposure in my portfolio, but I’m wary about overpaying. Could SDI fit the bill, or are the shares now fully priced?

The good news: profit upgrade

This morning’s surge higher was triggered by an update on recent trading at SDI. The company says two of its businesses have secured “significant one-time contracts” for equipment relating to Covid-19 testing and treatment.

The testing order appears to relate to the Atik Cameras imaging and astrophotography business. This group has secured an order for cameras to be used in PCR DNA amplifiers which, in turn, are used for Covid-19 testing.

SDI’s guidance suggests the benefit of these contracts will outweigh weaker results elsewhere in the group. Management believe they now have enough visibility on orders to upgrade profit guidance for the 2021 and 2022 financial years.

The firm now expects adjusted pre-tax profit for 2021 to be more than £6.7m, up by 55% from 2020. In the 2022 financial year, profits are expected to rise by another 30% to £8.7m. I’d be happy to pay a premium to buy a UK tech stock with this rate of growth, if I thought it could be maintained.

A word of caution

SDI’s financial year ends on 30 April, so today’s profit guidance applies to the period between now and 30 April 2022. I think it’s fair to assume that the Covid-19 pandemic will probably have passed by then.

If I’m right, demand could fade for Covid-related products from SDI. This could be a concern, as my feeling is that Covid-19 is currently making a significant contribution to group profits. If this demand slows, profit growth could fall sharply, or even go into reverse.

Of course, growth in other parts of the business may offset any future decline in Covid-related sales. At this point, it’s a little hard to know. However, I prefer to take a cautious view when buying shares in companies with an uncertain outlook.

SDI: the best UK tech stock to buy now?

My sums suggest SDI’s share price surge has left the stock trading on about 26 times 2021 forecast earnings. For 2022, that multiple falls to around 20 times.

I’m impressed by SDI, which has delivered strong growth in recent years through a mix of small acquisitions and organic growth. But my feeling is that the outlook for earnings is less certain beyond April 2022.

On balance, I think SDI shares are probably fairly valued at the moment. I’ll keep watching, but I don’t plan to buy the shares just yet.

So, what’s gone so right for the digital imaging, sensing and control products manufacturer through the pandemic? Today’s half-year results report contains some decent figures. And there was a “strong” contribution from products designed for equipment used to test for and treat Covid-19. And that offset the negatives suffered by the company through the crisis. 

Why SDI is a UK tech stock I’d like to buy

In the six months to 31 October 2020, revenue rose by 23% year on year. And adjusted earnings per share advanced by 45% backed by a solid rise in cash from operations of 130%. Meanwhile, net debt plunged to £0.34m from just over £4m six months earlier. And I reckon the strength of the company’s cash performance demonstrates the quality of the business model.

SDI has a decent five-year record of balanced growth. Revenue, earnings, cash flow and the operating margin all rose incrementally at a decent clip. Indeed, the compound annual growth rate for earnings works out at about 25%. And I find other quality indicators to be encouraging.  For example, the return-on-capital figure runs near 11% and the operating margin is around 14%.

There’s no doubt the firm adapted well to changing customer demands through the pandemic. But will growth continue? City analysts have pencilled in a modest increase in earnings of just over 4% for the full year to April 2022. And that’s much lower than the 67% advance in earnings they expect for the current trading year to April 2021. But I think SDI looks well placed to grow its business over the long haul.

A sharp focus on deal-making

The business model is interesting. SDI operates as a collection of smaller businesses, each focused on its own area of speciality within the wider sector theme. And the SDI boardroom is populated by accountants and money men. For example, chairman Ken Ford has a background in investment banking and chief executive Mike Creedon is an accountant with an MBA. Then there’s chief financial officer Jon Abell. However, missing from the board line-up is any position of chief technical officer, chief operating officer or similar. So, it seems the overall business is run with an accountant’s-eye view. And the technical and operating expertise is likely found closer to the ‘coal face’ in the underlying operating divisions.

But I think the set-up is a good thing. SDI is growing by buying bolt-on businesses and tuning them up to run at maximum performance. The post-period-end acquisition of Monmouth Scientific Limited is a good example of the strategy in action. And when it comes to evaluating the viability of acquisitions, accountants and deal makers could arrive at the negotiating table with cool and logical heads. It’s the kind of approach to business that made Warren Buffett’s  Berkshire Hathaway so successful.

With the shares near 102p, the forward-looking earnings multiple is just above 20. That looks like a full valuation. But I think the quality of the business justifies it. And I’d be keen to buy some of the shares on dips and down-days to hold for the long term.

Holding company Aveva (LSE: AVV) has produced outstanding returns for its investors over the past decade. Since the beginning of 2010, the stock has returned 16.8% per annum, outperforming the FTSE 100 by 9.3%. 

It looks as if this trend is going to continue. City analysts are forecasting earnings growth of 194% for 2020, and growth of 12% for 2021. These estimates put the stock on a 2021 P/E of 38.1. 

This multiple might appear expensive at first, but because Aveva’s engineering and process management software provides critical services for the company’s customers, I think it is a premium worth paying. Customers tend to stick with the group for years as the cost of switching providers is just too high, and the risks are too great, which gives Aveva a substantial competitive advantage.

Fool contributor Rupert Hargreaves does not own shares in Aveva.

Roland Head: Barclays

The Barclays (LSE: BARC) share price is finally showing some momentum, after years of underperformance. But I believe this FTSE 100 bank remains cheap by most standards.

The shares offer a forecast dividend yield of 5.3% for 2020 and trade on less than eight times forecast earnings. Value investors might also be interested to note that the last-seen share price of c.180p represents a 30% discount to the bank’s tangible book value of 274p per share.

I expect Barclays shares to move closer to their book value in 2020 as trading continues to improve. I rate this unloved bank as a buy for value and income.

Roland Head has no position in any of the shares mentioned.

Andy Ross: AstraZeneca

Ahead of full year results coming out in February I think investors might pile into the high-flying pharmaceutical giant AstraZeneca (LSE: AZN). The share price did well in 2019 and investors will be expecting a positive update from the company.

The series of positive drug pipeline updates in 2019 seems unlikely to reverse anytime soon with new drugs being approved in China and the US in December.

With 164 drugs in its pipeline and with a strong focus on oncology I expect the group to do well in January and to keep its upwards trend going throughout the year.

Andy Ross owns shares in AstraZeneca.

Royston Wild: Shanta Gold

With gold prices having charged through the psychologically critical $1,500 per ounce marker in chirpy end-of-year business, the stage could well be set for more meaty gains in January, I reckon.

And what better way to play the gold bull run than by buying shares in Shanta Gold (LSE: SHG)? It’s a bullion digger whose share price boomed around 55% in 2019, and yet one whose low forward P/E ratio of 6.8 times still suggests that it’s undervalued.

Shanta Gold isn’t just a play on the strong metal prices of the moment, though, with accelerating production (which was up 15% in the third quarter at 22,726 ounces) giving extra reason for stock pickers to pile in today.

Royston Wild does not own shares in Shanta Gold.

Kirsteen Mackay: Sports Direct

In mid-December Sports Direct (LSE: SPD) shares rose 30% after it published its interim results for the six months to October 27. During this time sales rose 6% in UK sports retail, and 79% in its premium division which includes its House of Fraser stores. Net debt fell by almost 50%.

It also announced it is rebranding its business to Frasers Group (LSE: FRAS) in an effort to appear more upmarket. However, Sports Direct stores themselves will not change their branding. Owner Mike Ashley is also considering a £100m staff bonus scheme for full-time employees.

I think the Sports Direct share price will continue to rise in January 2020.

Kirsteen does not own shares in Sports Direct

Paul Summers: AG Barr 

My first pick for 2020 is Cumbernauld-based beverage business AG Barr (LSE: BAG), the owner of brands such as Rockstar, Rubicon and, of course, Irn Bru. 

Last year was one those already invested will want to forget. Shares plunged after sales came in lower than expected following management’s decision to raise prices. Having traded sideways for a while now on reduced expectations, however, I’m wondering if a recovery may be on the way. 

Admittedly, the shares still aren’t cheap at 20 times forecast FY21 earnings but I think this can be justified based on the fat margins and returns on invested capital Barr has produced to date. A 3.1% yield means holders are being compensated for their patience. 

Paul Summers has no position in AG Barr.

Kevin Godbold: Burberry

Branded luxury goods retailer Burberry (LSE: BRBY) has revitalised its product offering since it recruited Riccardo Tisci as its chief creative office in early 2018. New products now account for around 70% of the company’s main-line retail store offering and the response from customers has been encouraging.

Revenue and earnings have been rising, driven by a savvy multi-media campaign. Meanwhile, the company has been rationalising its wholesale operation and refreshing retail stores in “all” major cities. Despite the forward-looking earnings multiple north of 20, I think new energy is infusing Burberry and, given its opportunities to expand in Asia and other countries, I’d buy the shares for January and beyond.

Kevin Godbold does not own shares in Burberry.

Peter Stephens: Bovis

The prospects for housebuilders such as Bovis (LSE: BVS) continue to be relatively robust. High demand for new homes is being supported by government programmes such as Help to Buy that are expected to continue under Boris Johnson’s leadership.

The company is making good progress in improving its build quality and customer satisfaction ratings. Its price-to-earnings (P/E) ratio of 12.4 suggests that it offers a wide margin of safety, while a dividend yield of 7.6% is set to catalyse its total returns. Brexit-related risks may hold back its short-term share price performance, but its long-term outlook seems to be positive.

Peter Stephens does not own shares in Bovis.

Tezcan Gecgil: Mondi

Paper and packaging group Mondi (LSE: MNDI) might be one of the lesser-known FTSE 100 companies. Yet with operations across more than 30 countries and multiple industries, it manages forests, produces pulp, paper and plastic films. And it offers industrial and consumer packaging solutions as well as sustainable packaging products worldwide. For example, in August its ‘SizeMeMailer’ won an industry award for reducing environmental footprint for online shopping.

I’m willing to bet that the growth in eCommerce, especially during the festive period in the final weeks of 2019, will likely benefit Mondi shares in the coming months. The market values the firm at about £8.65bn – a solid market capitalisation. At present, the business provides investors with a robust 3.9% dividend yield and the share price of 1,785p throws up a forward P/E ratio just over 12.

Tezcan Gecgil does not own shares in Mondi.

Edward Sheldon: Tritax Big Box Reit

My top stock for January is FTSE 250 property company Tritax Big Box Reit (LSE: BBOX), which owns a portfolio of strategically-located warehouses that are let out to online retailers.

The reason I like Tritax Big Box is that the company is well placed to benefit from the growth of e-commerce. With more and more consumers shopping online, retailer demand for strategically-located logistics warehouse space is rising, which is good for real estate companies that operate in this niche area.

BBOX shares currently trade on a P/E ratio of around 21 and offer a dividend yield of approximately 4.6%. Those metrics are attractive, in my view.

Edward Sheldon owns shares in Tritax Big Box Reit

Tom Rodgers: SDI

SDI (LSE: SDI) is on a great growth spurt and there’s plenty more upside to come, in my opinion. The Cambridge digital imaging firm posted another stellar set of results in December, with earnings per share up 28%, operating profits 41% higher and overall revenue climbing 42% to £11.45m. 

A strong management team are accelerating acquisitions: the £4.3m buyout of profitable gas flow manufacturer Chell Instruments was a particularly sound move to grow earnings in 2020. 

A trailing P/E ratio of 34 drops to 27 looking to next year because of these booming earnings and I think SDI will continue to outperform. 

Tom Rodgers owns shares in SDI.

Manika Premsingh: Associated British Foods

The FTSE 100 conglomerate Associated British Foods (LSE: ABF) released a positive trading update in early December. For a consumer goods company with significant interest in retail; I think this is a win that can’t be overlooked. While Primark is expected to show a small slip-up for the full year, it’s still expanding internationally.

ABF also expects gains for its food business. But its share price hasn’t responded much to the update; in fact, it rose far more sharply to the election results. I reckon that it will rise further as investors search for bargains at a time when share prices of quality companies have already run up quite a bit in the past weeks, making ABF my top share for January.

Manika Premsingh has no position in Associated British Foods.