Most of my portfolio hails from the FTSE 100 but I like to get out of my comfort zone and look at smaller, fast-growing tech stocks too. That’s why I was intrigued to see a list of five mid-cap tech stocks culled from the FTSE 250 and AIM by John Moore, senior investment manager at wealth manager Brewin Dolphin.
Moore says the UK market isn’t renowned for high-growth tech companies but notes that those it has have attracted several buyers lately. “Avast is set to merge with NortonLifeLock. A private equity group is weighing up a bid for Darktrace. Schneider Electric is looking at Aveva. Latterly, MicroFocus has been acquired by Canada’s OpenText.”
These UK tech stocks are worth exploring
Moore has picked out five hidden UK tech gems trading at comparatively cheap valuations, that could fill the void. We’re told that “they have been quietly plying their trades for years, building momentum that could see them become the next generation of UK tech stars.”
His first pick is Oxford Nanopore, which develops nanopore sequencing products for the electronic analysis of single molecules. The name seems vaguely familiar, that’s because disgraced fund manager Neil Woodford included it in his ill-fated portfolio.
The stock began well after its September 2021 flotation, then got caught up in this year’s tech meltdown. It is down 37.83% six months. This £2.38bn market cap stock looks good value at 11.83 times earnings. This year’s troubles could prove a buying opportunity for braver investors.
GB Group operates in the fast-growing ID and fraud prevention services market. Moore notes that it’s a favourite of AIM and small-cap managers, including Liontrust, Aegon, and abrdn. A US private equity firm has reportedly already tabled an offer for the company. Its stock has jumped 31.13% in a week. It might be a bit late for this one.
AIM-Listed Next Fifteen Communications Group is a collection of data businesses that operate across advertising, software engineering and media buying. Its £907m market cap offers growing room, although this year’s planned £310m takeover of rival M&C Saatchi foundered when the Next Fifteen share price sank.
Moore also picked out Belfast-based software, IT, and resale consultancy Kainos Group. Its share price is up 400% over five years but down 27% over 12 months. The company, which has a £1.7bn market cap, is on course to deliver pre-tax profits of £62.7m-66.5m this year.
I’d start with £1k then build up
His final choice is AIM-traded Kape Technologies, a £959m digital security and privacy market specialist. Its shares have struggled this year, but it has raised between $110m and $200m for acquisitions. It trades at 14.34 times earnings.
Naturally, tech growth stocks like these are risky, and I would only buy them with a small part of my portfolio. Thankfully, I already have plenty of big mainstream stocks, thanks to my FTSE 100 dividend income holdings.
Of these five, Oxford Nanopore and Kape Technologies catch my eye. I’ll be keeping an eye on them and I’d start small by investing £1k in each, then top them up if all goes well.
The post Brewin Dolphin’s 5 tech stocks to watch: I’d split £2k between 2 of them appeared first on The Motley Fool UK.
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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK hasn’t recommended any of the shares mentioned in this article. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.