AIM stocks have only been allowed in ISAs in August 2013, and initially the index proved to be a good place to find opportunities. FE data shows that AIM rallied by more than 20 per cent since 5 August last year, beating the FTSE Small Cap ex UK, FTSE 250 and FTSE 100 indices.
Performance of indices over 1yr
Source: FE Analytics
Some commentators suggest that the surge is in part due to the ISA money flowing into the stocks, though strong demand for UK domestic companies in general cannot be discounted.
AIM stocks have suffered in recent months however as a result of a wave of earnings downgrades in smaller companies, and are now only just ahead of the FTSE 100 and 250 in 2014. Online retailer ASOS has been a notable underperformer.
That said, Miah and a growing number of experts believe that the widespread falls are creating opportunities for investors looking to tap into high growth companies.
Here are three of his favourites.
Breedon Aggregates
“Infrastructure spend overall has been sluggish, despite politicians recognising the part this could play in any economic recovery. It has therefore been difficult for companies like Breedon Aggregates that provides materials to the construction and building sector,” said Miah.
“Despite this, margins have been improving, helped by lower costs, stable pricing and acquisitions.”
FE data shows that the company has been in a strong phase of growth in recent years. However, the shares have been hard very hard in the recent sell-off, down almost 20 per cent since their peak in May.
Performance of stock and indices over 3yrs
Source: FE Analytics
Miah thinks it could be a good time to snap up Breedon Aggregates as a result – particularly those optimistic that the UK domestic recovery has further to run.
“The company has been positioning itself to benefit from any pick up in the economy and demand for its products,” he said.
“A number of acquisitions have been made which should help expand its geographical presence in the UK and management expects these to make a significant and improving contribution.”
“This is a smaller AIM listed company that is geared to a recovery in infrastructure spend and is for investors prepared to take a longer term view.”
Only one fund – the five-crown rated Hermes UK Small and Mid Cap portfolio – includes Breedon as a top-10 holding. Manager David Stormont has per cent 3.5 per cent in the company, making it his second largest single-stock position.
Monitise
The mobile telecommunications group has long been a favourite with small cap managers, but it has suffered a big fall in light of the recent AIM sell-off.
Miah points out that Monetise continues to see increasing demand for its services and believes it is on track to meet its 50 per cent revenue growth target in 2014.
He adds that the outlook for the company has been helped by a number of acquisitions in the last financial year, as well as recent news that a former Visa executive has become joint chief executive.
“Investors will acknowledge that Monitise already boasts leading blue chip partners and will be encouraged by the news that the group has become the technology partner behind Yaap Shopping, the Spanish mobile commerce service launched by the alliance of CaixaBank, Santander and Telefónica,” Miah said.
Performance of stock and indices over 3yrs
Source: FE Analytics
“The new contract wins in Europe and the US demonstrates that the company is seeing multiple opportunities in all geographies.”
“The company continues to attract high calibre partners and customers, helping to firmly integrate its proposition as the preferred interface between financial institutions and their customers globally.”
“Results continue to demonstrate that the group is heading in the right direction and so we recommend Monitise for a higher risk, early stage investment opportunity.”
Three funds currently hold Monitise in the top-10, including Paul Mumford’s top-performing Cavendish Opportunities portfolio.
Amerisur Resources
For speculative investors, Miah likes the already popular Amerisur Resources. The risk are high, he says, but the potential for rewards are significant.
“This small oil and gas exploration firm operates in the potentially unstable region of Columbia, so it represents a very high risk investment,” he said.
“Amerisur Resources has made significant progress in terms of exploration in recent years, turning exploration projects into productive assets. Production only began at its Platanillo field in southern Colombia in 2012 and has now reached to 7,000 barrels of oil equivalent per day.”
“Its fields are all set for more seismic and drilling activity and the company remains positive on their prospects.”
Performance of stock and indices over 3yrs
Source: FE Analytics
Though very volatile, the stock has weathered the AIM sell-off very well, and has made significant gains year-to-date. However, Miah thinks it is still good value.
“With production increasing at a rapid rate, the company is expected to build on last year’s performance with net margins predicted in the region of 45 per cent,” he said.
“This is helped by the fact that the company has no debts on its books. With a forward price to earnings ratio of six times the valuation compares favourably against its peer group.”
Amerisur Resources is the most popular of the three stocks with managers, appearing in the top-10 of nine IMA funds. Among its biggest admirers are FE Alpha Manager Giles Hargreave, who runs the Marlborough Special Sits fund, Miton’s Gervais Williams and MFM Slater’s Mark Slater.
