After a market-beating return in 2020, this team of investing experts explain their picks for this year.
Peel Hunt's 41-strong list also features high-flying AO World (LSE:AO.) and a range of other consumer-focused stocks, including ASOS (LSE:ASC), Dunelm (LSE:DNLM), Halfords (LSE:HFD), Pets at Home (LSE:PETS) and WH Smith (LSE:SMWH).
And if last year's performance is anything to go by, the broker's growth picks are worthy of close attention. Its 35 top growth selections for 2020 delivered an annual total return of 6%, compared with a 12% drop for the FTSE All-Share after a year of Covid disruption.
Five of last year's stocks climbed by more than 40% — Games Workshop (LSE:GAW) (83%), Boku (LSE:BOKU) (67%), Tharisa (LSE:THS) (58%), Avon Rubber (LSE:AVON) (51%) and ASOS (42%) — and 23 outperformed in total.
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Thirteen sectors are represented in the new list, with retail having the biggest presence and followed by consumer with five, and financials, industrial and travel & leisure with four each.
Peel Hunt's head of research Charles Hall said: “While the latest twist from a more transmissible new strain looks to have delayed hopes of a speedy recovery in 2021, the impact of the vaccines should be increasingly felt.”
The biggest stock on the list is £17.4 billion-valued Ocado, which the broker describes as the Microsoft of Retail. The shift online since Covid-19 helped shares in the grocery technology stock to rise by 75% in 2020, but Peel analyst James Lockyer believes there's much more to aim for as Ocado Solutions chases new partnerships with global food retailers.
He has a target price of 2,800p, which compares with 2,389p today, and says Ocado is a long-term growth story with a 15-year horizon. Lockyer added: “Despite the epic run so far, we cannot take our eyes off the £2.8 trillion TAM (total available market) prize. Ocado hopes to take a chunk of this over the long run and, after not even three years, has already signed 7.5%.”
Other heavyweight picks include Mexican silver producer Fresnillo (LSE:FRES) and JD Sports Fashion, which Peel Hunt said remained the “retailer of choice for many”.
Analyst Jonathan Pritchard has a price target of 900p, which compares with 845p today. He added: “The core business and the US are likely to remain in the vanguard, but Europe is maturing nicely and the Far East is evolving well too.”
His other retail picks include Halfords, where the company's market leadership in cycling and strong position in motoring has been beneficial during the pandemic.
Pritchard said: “The current management team has a much better strategic grip than its predecessors, and we expect the ongoing tailwinds from cycling plus better tactics on the motoring side will lead to strong earnings momentum in the medium and long term.”
While a growth stock with a price target of 300p, Pritchard expects Halfords to increasingly interest income investors as normality returns.
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Dunelm shares have also shown impressive resilience this year, aided by its active customer base growing at double-digit levels. Pritchard thinks this will provide the foundation for further market share gains and revenue growth over 2021 and beyond.
A special dividend is on the cards with February's interims, which should form part of £430 million of distributions expected over the next three years for an annual yield of 6.2%.
Peel Hunt's Pritchard adds that DFS Furniture is in an “enviable position” with leadership in a growing sector, although a price/earnings multiple of 10 times means shares are “way too low”.
ASOS attracts a price target of 6,500p, with Peel Hunt excited by the prospect of much stronger sales traction in the United States once normality returns to clothing markets. Its rival Boohoo (LSE:BOO) is also a ‘buy’ recommendation, having been hit by supplier welfare concerns as much as Covid during 2020.
Noting a target price of 475p, Pritchard said: “The growth prospects are as compelling as ever.”
There's a similar upbeat view on online electrical retailer AO World, which is “primed to outperform” after the pandemic meant significant growth in active customer numbers this year.
Pritchard's colleague John Stevenson believes there's scope for shares to reach 450p. He added: “Market forecasts are based on 8-10% growth over the next two years, which looks woefully inadequate. In addition, with the European model now profitable, AO will start to expand selectively into new territories in due course.”
Away from the retail sector, popular AIM stock AB Dynamics (LSE:ABDP) is backed for a return to form after shares fell sharply in November on the back of a cautious trading update.
The Wiltshire-based company, which provides car manufacturers with driving robots for the testing and verification of autonomous vehicles and driver assistance technology, is currently at 1,970p but Peel Hunt has a target of 2,250p.
Analyst Henry Carver said: “AB Dynamics is the only UK-listed pure play on the boom in active safety in passenger cars and autonomous vehicle development. These are two of the most compelling long-term structural growth trends in the automotive market.”
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The other stocks on Peel Hunt's list of growth stocks are 4imprint (LSE:FOUR), 888 Holdings (LSE:888), Brooks Macdonald (LSE:BRK), CMC Markets (LSE:CMCX), CVS Group (LSE:CVSG), discoverIE (LSE:DSCV), Energean (LSE:ENOG), Ergomed (LSE:ERGO), GB (LSE:GBG), Genus (LSE:GNS), Gulf Keystone Petroleum (LSE:GKP), Harworth (LSE:HWG), Hilton Food (LSE:HFG), Homeserve (LSE:HSV), Inspecs (LSE:SPEC), Jadestone Energy (LSE:JSE), Kin and Carta (LSE:KCT), Learning Technologies (LSE:LTG), Mortgage Advice Bureau (LSE:MAB1), On The Beach (LSE:OTB), Polar Capital (LSE:POLR), Pure Gold Mining (LSE:PUR), Purplebricks (LSE:PURP), Sirius Real Estate (LSE:SRE), The Gym Group (LSE:GYM), Treatt (LSE:TET), Victrex (LSE:VCT) and XP Power (LSE:XPP).
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