2023 has been a great year for some stocks, so far. With major indexes returning to bull market territory, those with well-diversified portfolios have generally done very well.
Here, I’m going to highlight three stocks I’m backing for the second half of the year. All of these companies have momentum right now, and I see them as great long-term investments.
A FTSE 100 star
In the large-cap space, I like FTSE 100 company Ashtead (LSE: AHT), the construction equipment rental business that operates in the US, the UK, and Canada.
Ashtead shares have had a good run this year, outperforming the FTSE 100 by a wide margin.
However, I think they’re just getting started. Thanks to large-scale construction projects in the US (e.g. new semiconductor plants), Ashtead’s revenues are booming.
This is leading to both significantly higher earnings and dividends (the company just raised its full-year payout by 25%).
The risk here is that the US has a recession and construction activity slows.
However, with the stock trading on a P/E ratio of 16, I see the risk/reward skew as attractive.
It’s worth noting that analysts at JP Morgan recently raised their target price to 6,700p. That’s about 24% above the current share price.
An under-the-radar AI stock
In the mid-cap FTSE 250 index, I like the look of Kainos (LSE: KNOS) right now. It’s a tech company that helps public and private organisations with digital transformation (one of the biggest trends on the planet).
I see Kainos as a good play on artificial intelligence (AI). Right now, businesses all over the world are turning to technology specialists to find out how they can use AI to their advantage.
Kainos is well-positioned to benefit from this trend. It has considerable experience in the space, having already delivered AI and machine learning solutions to hundreds of customers globally.
Unlike a lot of other AI companies though, Kainos hasn’t seen its share price explode higher this year. That’s why I see it as a good pick for H2.
The risk is that this stock isn’t cheap. Currently, the forward-looking P/E ratio is about 27. But I think that’s reasonable.
This is a company with a great long-term track record. Recently, it recorded its 13th year of growth (24% revenue growth for the year ended 31 March).
A small-cap growth share
Finally, in the small-cap space, I want to highlight Alpha International (LSE: ALPH). It’s a founder-led company that provides FX risk management and banking payment solutions.
One reason I’m bullish here is that the company is growing at a rapid pace. Over the last five years, revenue has climbed from £13.5m to £98.3m. For 2023, analysts expect revenue of £120m.
Another reason is that the company is benefitting from higher interest rates because it earns interest on client balances. In the last four months of 2022, it earned interest income of £9.3m (2021: nil). With rates still rising, its profits could be set to move significantly higher.
This stock has the highest valuation of the three. Currently, the forward-looking P/E ratio is about 29, which adds risk.
It has always been quite expensive however, which is a risk. But that hasn’t stopped it from generating incredible returns for investors in the past.
