In this article, we will look at the 7 Best UK Growth Stocks To Invest In.
The Economy of the United Kingdom
According to a report by KPMG, the United Kingdom’s GDP growth will slow in the second half of 2024 but will pick up slightly to 1.2% in 2025. This growth is expected to be driven by a less restrictive monetary policy and continued improvements to real wages, which could support stronger consumption and business investment. However, the longer-term GDP growth could be limited to around 1.1% a year due to a historically weak pace of productivity growth.
UK inflation is expected to rise to 3% in early 2025 after falling below 2% in September. This increase is attributed to the ongoing economic recovery and the impact of interest rate cuts on the economy. However, the Bank of England is expected to approach easing monetary policy cautiously, with the base rate expected to reach 3.5% by the end of 2025, to stimulate the economy while avoiding overheating and inflationary pressures.
The UK’s consumer spending is expected to be dampened by higher savings rates. UK consumers have been putting a significantly higher proportion of their income aside since the pandemic, which may continue to reduce spending growth. While some of the increase in savings could unwind as interest rates fall, a significant part of the increase in savings could prove more persistent, owing to longer-term demographic trends and increased caution in response to a more volatile economic environment. In terms of investment, the forecast expects overall investment growth to accelerate as further interest rate cuts reduce the drag on business investment, and the new Government’s focus on accelerating economic growth could also help spur a positive momentum. The UK labour market is expected to continue to loosen despite robust activity in the UK economy over recent quarters. The forecast notes that firms could see easier hiring and weaker wage growth ahead as the labour market continues to adjust to changing economic conditions.
The United Kingdom’s Market Outlook
Neil Shah, Director of Research at Edison Group, a leading investment research company in the United Kingdom, said that the market is concerned about the economy’s growth slowing down, but interest rates are decreasing at the same time. As a result, investors are taking a barbell approach by balancing their portfolios with a mix of growth stocks and defensive positioning.
Shah highlights the UK’s relative attractiveness from a valuation perspective, particularly compared to its European peers. He notes that there have been reports of investors investing elsewhere but believes that the UK market is starting to come into focus, with positive signs such as the consumer holding up better than expected.
Shah also discusses the ongoing outflows from UK pension funds, which have reduced their allocations to the UK from 50% to 3%. He believes that this selling pressure is starting to bottom out and that there are signs that it may start to turn around. Additionally, Shah highlights the capital markets reform agenda, which he believes has a lot of ambition, but needs to be implemented.
Shah said that there are many undervalued stocks in the UK and that investors are starting to take notice. He mentions that there has been a rotation out of Europe and into the UK, driven by economic concerns in some European countries and geopolitical issues. This trend will continue, and the UK market will eventually become more attractive to investors.
The economy of the United Kingdom is expected to experience a moderate growth rate driven by a less restrictive monetary policy and improvements to real wages. The forecast by KPMG suggests that the UK economy will continue to grow at a moderate pace and will be stable in the coming years. With that in context, let’s take a look at the 7 best UK growth stocks to invest in.
A businessperson giving a presentation on a graph demonstrating the growth of a mid-capitalization equity market.
Our Methodology
To compile our list of the 7 best UK growth stocks to invest in, we used the Finviz and Yahoo stock screeners to find the 20 largest companies in the UK in growth-related industries. We then narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best UK Growth Stocks To Invest In
7. Gorilla Technology (NASDAQ:GRRR)
Number of Hedge Fund Investors: 4
Gorilla Technology (NASDAQ:GRRR) provides AI-driven analytics and cybersecurity solutions and specializes in security intelligence, network intelligence, business intelligence, and IoT technology. Gorilla Technology (NASDAQ:GRRR) is used by enterprises and governments to enhance security and improve operational efficiency. The company mainly operates in Asia and is expanding its reach globally.
Gorilla Technology (NASDAQ:GRRR) is focusing on AI edge computing, which brings artificial intelligence algorithms and associated data processing capabilities to the “edge” of a network, close to the source of the data. This approach significantly reduces latency, enhances security, and minimizes bandwidth usage. Edge AI is increasingly used in applications where real-time processing and decision-making are critical, such as autonomous vehicles, industrial automation, and Internet of Things devices. The Edge AI market was valued at $17 billion in 2023 and is expected to grow to $66 billion by 2030 at a CAGR of 21%. The company has already scored deals with the Egyptian Government worth $270 million over three years, as well as partnerships with British Telecom, Taiwan law enforcement, and Protractics.
Gorilla Technology (NASDAQ:GRRR) presents a compelling investment opportunity due to its strong pipeline of contracts and partnerships, projected revenue growth, and potential for positive cash flow.
In the second quarter, the company’s stock was held by 4 hedge funds with stakes worth $3.41 million.
6. Arqit Quantum (NASDAQ:ARQQ)
Number of Hedge Fund Investors: 4
Arqit Quantum (NASDAQ:ARQQ) is a cybersecurity company that uses quantum encryption technology to create and distribute symmetric encryption keys while safeguarding data from cyber threats.
Arqit Quantum’s (NASDAQ:ARQQ) QuantumCloud software is designed to provide secure encryption across various industries, including finance, defence, and telecommunications. The company offers a platform-as-a-service that uses replicated entropy and software agents to securely create and distribute symmetric encryption keys. The company’s solution is designed to be scalable, easy to use, and low-cost, making it a potentially attractive option for companies looking to secure their data.
Despite challenges, Arqit Quantum’s (NASDAQ:ARQQ) technology for securely creating and distributing encryption keys has the potential to revolutionize the way encryption keys are created and distributed as quantum computers become more widespread.
In the second quarter, the company’s stock was held by 4 hedge funds with stakes worth $344,000. Millennium Management is the largest shareholder in the company with a stake worth $270,159 as of June 30.
5. Vtex (NYSE:VTEX)
Number of Hedge Fund Investors: 14
Vtex (NYSE:VTEX) is an e-commerce platform that provides cloud-based solutions for enterprises to scale their online businesses. The company offers a variety of tools for omnichannel commerce, including store management, payments, and logistics. Vtex (NYSE:VTEX) serves clients across Latin America, with growing operations in other global markets.
On September 3, Vtex (NYSE:VTEX), announced the acquisition of Weni, a customer service solutions provider fueled by advanced AI. This acquisition strengthens Vtex’s (NYSE:VTEX) ability to deliver a seamless, end-to-end customer experience platform tailored to the customized needs of its global enterprise brands and retailers. The acquisition of Weni also enhances Vtex’s (NYSE:VTEX) unified commerce platform, optimizing customer support and enhancing post-purchase experiences for premier B2B and B2C businesses. Vtex (NYSE:VTEX) will be able to offer a specialized and opinionated CX solution that ensures zero-friction onboarding and seamless collaboration for enterprise brands and retailers. The solution includes two key components: Auto-pilot, an AI-powered agent tailored for retail, and Co-pilot, a humanized customer service tool that boosts CX reps’ efficiency by seamlessly integrating AI with human oversight.
The acquisition is expected to drive sustained business success for Vtex’s (NYSE:VTEX) customers through a deeper, more connected commerce experience and makes it a compelling investment opportunity.
In the second quarter, the company’s stock was held by 14 hedge funds with stakes worth $34.16 million. Polar Capital is the largest shareholder in the company with a stake worth $8.6 million as of June 30.
4. Endava (NYSE:DAVA)
Number of Hedge Fund Investors: 16
Endava (NYSE:DAVA) is a technology services company specializing in IT services, including custom application development. The company also provides IT consulting, software development, and automation services to finance, healthcare, and telecommunications clients.
In June, Endava (NYSE:DAVA) announced the expansion of its partnership with Google Cloud in the Asia Pacific (APAC) region. The partnership aims to deliver and implement Google Cloud’s services, including Generative AI, Cloud Migration, and Application Modernisation, to offer tailored products and services across the Google Cloud product suite by providing customers access to highly skilled software and data engineers and excellent customer service. This expansion is a significant development in Endava’s continued growth in Australia, New Zealand, and Southeast Asia and demonstrates the company’s commitment to delivering technical excellence in the region.
Endava (NYSE:DAVA) focuses on custom application development, which is a high-growth area in the IT services industry. The company’s valuation is attractive, with a forward price-to-earnings ratio of 15x. Analysts expect the company’s stock price to approach $80 in 2-3 years, which represents a significant upside potential for investors looking for a high-growth investment opportunity.
In the second quarter, the company’s stock was held by 18 hedge funds with stakes worth $89.13 million. Paradice Investment Management is the largest shareholder in the company, with a stake worth $18.69 million as of June 30.
3. Paysafe (NYSE:PSFE)
Number of Hedge Fund Investors: 17
Paysafe (NYSE:PSFE) is a payment platform operator that enables businesses and consumers to connect and transact seamlessly. The company offers digital wallet services, online payment processing, and prepaid cards. Its products are used in e-commerce, gaming, and financial services industries, with a strong presence in Europe and North America.
In Q2, Paysafe’s (NYSE:PSFE) revenue increased 9% year-over-year to $439.9 million which indicated that the company’s operational momentum is strong, the growth was driven by eCommerce. However, Paysafe (NYSE:PSFE) has a debt-heavy capital structure, with a significant portion of floating-rate debt, which is expected to benefit from interest rate cuts.
On July 25, Paysafe (NYSE:PSFE) announced a partnership with Alchemy Pay, a leading fiat-crypto payment solution provider, to access its payment products and allow consumers to purchase crypto across 130 markets through Paysafe (NYSE:PSFE). This will allow users across 130 countries to easily use 40+ currencies to purchase Bitcoin, Ethereum, and other cryptocurrencies. By providing its payment products to Alchemy Pay’s customers, Paysafe (NYSE:PSFE) aims to earn increased revenue from transaction fees and expand its reach into the rapidly growing cryptocurrency market.
In the second quarter, Paysafe’s (NYSE:PSFE) stock was held by 17 hedge funds with stakes worth $30.92 million. Adage Capital Management is the largest shareholder in the company, with a stake worth $5.59 million as of June 30.
2. Clarivate (NYSE:CLVT)
Number of Hedge Fund Investors: 27
Clarivate (NYSE:CLVT) is a leading provider of information and analytics for research and innovation. The company offers solutions in intellectual property, scientific research, and life sciences by providing a comprehensive suite of research and development tools, particularly in the Academia and government (A&G) and Intellectual Property (IP) segments.
Clarivate’s (NYSE:CLVT) organic growth remains intact, with its two largest segments showing improvements, the A&G segment saw organic growth accelerate from 0.6% in Q1 to 1.3% in Q2, while the IP segment showed an organic growth improving by 270bps to -1.8% in Q2. Additionally, the company’s win rate on IPMS (IP management system) has improved, which is a strong leading indicator of growth for this segment.
The company’s valuation is cheap at the current level, with a forward PE of 9.03, a 55% discount to the sector median of 20.08. Moreover, analysts expect the company earnings to grow by 7% next year.
In the second quarter, the company’s stock was held by 27 hedge funds with stakes worth $1.50 billion. Leonard Green & Partners is the largest shareholder in the company with a stake worth $663.83 million as of June 30.
1. Arm (NASDAQ:ARM)
Number of Hedge Fund Investors: 38
Arm (NASDAQ:ARM) is a semiconductor company based in the UK that has been revolutionizing the industry with its innovative intellectual property for processors. Arm’s (NASDAQ:ARM) business model is supported by strong license and royalty revenue growth, driven by the increasing adoption of its chip architecture, which offers significant cost and energy efficiency advantages. The company’s partnerships with leading technology giants such as Amazon, Google, Microsoft, and Nvidia further solidify its position in the market.
The company’s royalty revenues have been consistently increasing, driven by the increasing adoption of its Armv9 architecture, which offers 35% greater performance efficiency compared to its predecessor, Armv8. Additionally, Arm’s chip shipments have averaged 4% growth for the past three years, with revenue per shipment increasing moderately by 7%. The company’s license revenue has also seen significant growth, with an average increase of 30% over the past four years, driven by the rising number of licensees, which has grown by 25% annually.
Arm (NASDAQ:ARM) has dominant position in mobile applications, with a 99% market share, and its growing presence in high-growth end markets such as cloud and network equipment, position it for continued success. In the second quarter, the company’s stock was held by 38 hedge funds with stakes worth $979.08 million. D E Shaw is the largest shareholder in the company with a stake worth $340.67 million as of June 30.
While we acknowledge the potential of Arm (NASDAQ:ARM) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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