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The Stocks and Shares ISA deadline is fast approaching, with only a few weeks left for UK investors to capitalise on their £20,000 annual allowance. As such, despite the economic turmoil, the hunt for high-quality, low-cost stocks is on the rise.
With that in mind, I’ve looked at two companies already in my portfolio that seem undervalued compared to their long-term potential. What’s more, I’ve also found two additional strong-looking businesses that operate in similar fields. Investing in small-caps involves additional risk. But as volatility scares most investors away, occasionally, top-notch enterprises end up being overlooked.
So here are four top stocks I think could be brilliant long-term investments in a Stocks and Shares ISA.
Disrupting the finance sector
Corporate banking is complicated, especially for businesses that have to deal with international exposure. Operating in multiple countries increases a firm’s addressable market size. But it also introduces several other headaches, namely currency exchange rate risk.
Corporate banks offer services to help businesses hedge this risk. However, these services are often prohibitively expensive for smaller enterprises. And that’s a niche Alpha Group has captured for itself.
By offering a low-cost alternative, the firm’s currency risk-management services have proven immensely popular, with revenue and net income growing by an average of 40% each year since 2017! That’s why I already have this business in my Stocks and Shares ISA.
Another company that’s caught my attention in this space is Argentex. It acts as a broker facilitating currency hedging transactions using financial derivatives such as forward contracts. And it too has reaped double-digit growth in the last five years.
Of course, currency hedging is a risky endeavour. One bad decision can destroy a lot of value for customers, potentially jeopardising relationships permanently. So it’s no surprise that both companies are diversifying into digital alternative banking.
Alpha Group currently has a head start. But Argentex appears to be developing an elegant solution of its own. And, given time, both firms have the potential to tap into the $250bn global corporate banking industry.
Building electronics of the future
As dependency on technology continues to increase, XP Power and Solid State are having little trouble finding customers. These companies are specialists in designing and manufacturing electronic components that power the world.
XP Power primarily focuses on the industrial, medical, and semiconductor manufacturing sectors. By comparison, Solid State caters to the defence, energy, and transportation industries, including electric vehicles. So there is some competing overlap. But both firms also have their own niches making them a potentially nice combination in a Stocks and Shares ISA to tap into the opportunities in the electronics industry.
Of course, every investment carries risk. And this sector is prone to requiring key raw materials that can be difficult to source. Therefore, supply chain disruptions are particularly problematic. Given there are larger alternative manufacturers, prolonged order fulfilment waiting times could push customers into the arms of competitors.
Nevertheless, with disruptions from the pandemic largely resolved and order backlogs getting cleared, both firms have a promising future, in my opinion.
