2 UK small-cap stocks I’d buy this December

James J. McCombie
·3-min read
Cute dog in funny colourful jester cap.
Cute dog in funny colourful jester cap.

UK small-cap stocks can offer exciting investments that can deliver outstanding long-term returns. The FTSE AIM is a good place to look for smaller companies to invest in. However, the prices of small-cap stocks tend to be more volatile than FTSE 100 or even FTSE 250 stocks.

At the moment, with the Covid-19 pandemic still ongoing, and Brexit just around the corner, risks for small-cap stocks, in particular, are high. However, I am willing to accept the risks and have a long enough time horizon to ride out any rough patches. With that in mind, here are two UK small-cap stocks that I would consider buying for December 2020 and beyond.

A small-cap healthcare stock

Hospitals have performed fewer surgeries and procedures this year. For a surgical and advanced wound care small-cap stock like Advanced Medical Solutions (LSE: AMS), this is bad news. Half-year 2020 revenue and profit before tax both declined, by 19% and 62% year-on-year respectively. But things are already getting better in most of the markets the company serves. The recent vaccine developments are encouraging and could potentially end the pandemic sometime next year. Hospitals returning to normal working conditions is a boon for AMS’s sales and bottom line.

Recent developments include two product approvals in India, patents granted in the UK and US for an advanced dressing, and a CE mark being awarded for another. Just yesterday, AMS completed the £22m cash acquisition of a wound care and bio-diagnostics coating business, that was also a key supplier.

These developments position AMS well for making the most of a recovery in surgical caseloads. Also, shopping for acquisitions and increasing R&D investment to £3.8m this year speaks volumes about AMS’s financial health and management confidence in the medium- and long-term prospects for this UK small-cap stock.

An AIM technology stock

Quartix Holdings (LSE: QTX) is one of Europe’s leading suppliers of subscription-based vehicle tracking systems, software, and services. In January 2020 the company picked up 555 new customers. Then, the Covid-19 pandemic knocked customer acquisition levels down to 200. However, 474 customers were added in September this year, meaning the impact was not as dramatic nor as long-lasting as once feared. All in all, across all markets served, the number of vehicles using Quartix’s products and services have increased so far this year. However, Quartix’s insurance telematics business, which relies heavily on newly insured drivers, slumped, but it does represent only 16% of total revenue.

I think UK small-cap stock Quartix has a lot going for it. Quartix’s customers have had the company’s tracking equipment installed on their vehicles and have learnt how to use its software. Switching to another product is expensive and time-consuming. This suggests customers will stick around. Those customers pay subscriptions for continuing use after installation. Recurring, predictable revenue is great for a growing company.

And Quartix does look good for continued growth. Its customers tend to be owners of fleets of cars and vans. Quartix gives them the ability to locate their vehicles 24/7, make scheduling of deliveries easier, check millage, and report driver locations to their customers. Quartix provides an essential service for customers looking to improve their fleet management. The increase in online delivery is just one trend that is increasing the need for fleet management.

The post 2 UK small-cap stocks I’d buy this December appeared first on The Motley Fool UK.

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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Advanced Medical Solutions and Quartix. 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.

Motley Fool UK 2020