Three stock ideas to track in 2020

interactive investor’s head of equity strategy Lee Wild picks a trio of quality small-cap stocks he thinks are worth watching over the next 12 months.     

When picking stocks for relatively short-term returns like 12 months, I'm going to make some big assumptions. First, that the buzz around Brexit will last deep into 2020, as investment from international investors feeds into UK assets.

Second, that Trump will use a long-term deal with China to secure a second presidential term in November. Third, that the global economy continues to grow at a reasonable lick, making growth stocks the ones to own.

So, this year, rather than pick just one stock to watch, I've got three ideas, all are small caps, so there's a bit of extra risk. But all have attributes that I think could contribute to further success.

First, I like Severfield (LSE:SFR), the company that’s supplied steel for some of London's biggest construction projects, from city skyscrapers to premiership football stadiums. It has a joint venture in India too, where construction is booming and Severfield takes a share of sharply increasing profits. Management tell me that's still only scratching the surface there, so plenty more to come. 

The share price rally following the general election result for a forward price/earnings (PE) ratio of 11.4 is still below the long-term average.

I also like self-storage company, Lok'n Store (LSE:LOK), have done for a long time. It's a business with a solid track record, plenty of growth to go for, and historically trades at a significant discount to larger rivals, like Big Yellow. 

The shares finally took off in 2019, and they're not cheap, but the industry is expected to keep growing fast and Lok'n Store should generate strong profit growth for years to come. Maybe one to buy if the shares get a little cheaper. 

Lastly, I'll be keeping an eye on £600 million cyber security company NCC Group (LSE:NCC). Soft UK demand knocked the shares at the beginning of 2019, which could have been Brexit related. If it was, the recent general election result and greater certainty about political direction should get companies spending again.

The business is also in much better shape following a significant overhaul in the past few years under new CEO Adam Polser. It hasn't been easy, but he has an impressive CV, and is getting results. 

So now, halfway through a three-year transformation plan, full-year pre-tax profit increased by 52% to £17.8 million, or by 9.2% to £32 million on an adjusted basis. Revenue was up 7.6% to £251 million, net debt fell, and cashflow improved. We've heard first quarter trading was in line, and profits are forecast to grow by 13% this year, and by 16% the year after.

Expect further strong growth at the US business and an improvement in the UK as Brexit certainty drives greater corporate spending. At 207p, the shares trade on just under 20 times earnings and yield just over 2%. 

They're at a crucial point according to chart analysts, so watch the half-year results due out from mid-January.

[Video filmed on 18 December 2019]