Investors would be wise to look at stocks that are going places, in more ways than one. Backing a business that is growing earnings and market position, as well as strengthening its finances, should in theory result in decent share price gains. It is this combination of factors which underpins our latest search for investment ideas.

For this article, we have run two screens on Stockopedia to create a list of stocks to research further. The first screen looks at companies with top momentum scores from Stockopedia, as determined by the following factors:

PRICE MOMENTUM FACTORS:

– Proximity of current share price to the 52-week high

– 50-day vs 200-day moving averages

– 1-year relative strength of the share price versus the market

– 6-month relative strength of the share price versus the market

EARNINGS MOMENTUM FACTORS:

– EPS estimate upgrades within the last one month for next financial year

– EPS estimate upgrades within the last three months for this financial year

– EPS surprise percentage based on the latest reported financials

– Scaled earnings surprise based on the standard deviation of the original consensus forecast

– Consensus broker recommendation upgrade over the last month

With this list, we looked at stocks worth less than £800 million, with the intention of focusing on the smaller company space where investors are less familiar with the opportunities. Five of our investment ideas in this article appeared on this list. These are packaging group Macfarlane (MACF), interior design specialist Sanderson Design (SDG:AIM), camera equipment seller Vitec (VTC), information provider Wilmington (WIL) and make-up expert Warpaint London (W7L:AIM).

We also looked at a second group of stocks of all sizes purely based on price momentum, stipulating that the share price performance had to be at least 80% better than the FTSE All-Share over the past six months. This produced our sixth investment idea for this article – media group Future (FUTR).

The idea of focusing on momentum factors is down to trend following. These shares are already on the move, but the trend can still be in play for some time.

By picking companies with clear strategic opportunities and big scope to keep growing earnings, one would hope that investors continue to buy the stock and push the share price even further.

Investors should pay close attention to each stock once purchased and consider selling if the share price loses momentum. We like all the companies in this article because of the strategic progress, earnings potential and news flow but we note that pullbacks after a big rally can be quite severe. In such a situation, it’s better to take profits, sit on the sidelines and wait for a better and cheaper entry price.

Future (FUTR) £38.38 BUY

Market cap: £4.6 billion

Shares in multi-platform digital publisher Future (FUTR) have more than doubled in the last six months, helped by a string of earnings upgrades as well as the acquisitions of price comparison company GoCo and leading brands from Dennis Publishing.

Over the last six months 2021 and 2022 earnings estimates have increased by around a third, continuing a stream of consecutive upgrades which have seen earnings estimates increase by two thirds since March 2020.

Future operates in fast growing markets with structural drivers. Acquisitions have been a key part of management’s growth strategy and at times have drawn scepticism from some investors.

The latest acquisition of brands from Dennis could be a game changer in terms of the financial benefits on offer and accelerate the group’s penetration into the US, laying the foundation for further growth.

The acquisition was announced in August for a cash consideration of £300 million and according to analysts at investment bank Berenberg it offers multiple synergy opportunities.

Dennis’s Kiplinger brand adds significant scale in the US consumer wealth vertical providing the opportunity to accelerate the monetisation of digital advertisements, e-commerce and price comparisons.

Other Dennis brands acquired include Science, Nature and PC Pro and Minecraft World. Shore Capital noted that the acquisition brings higher cash flow visibility and customer retention (80%) because around 75% of Dennis’s revenues are subscription based. Importantly, the deal also gives Future access to first party data.

Despite strong recent share price performance, we believe there is scope for continued earnings upgrades, driving the shares higher. [MGam]

Macfarlane (MACF) 141p BUY

Market cap: £223 million

Glasgow-based packaging firm Macfarlane (MACF) can trace its roots back 70 years, but today it is at the forefront of the structural shift to online retail. Thanks to a near-50% surge in new business it has just raised its full year outlook despite well-documented rises in input costs and supply chain challenges.

The firm has a small manufacturing operation which designs and makes custom packaging for high-value items, and designs and prints self-adhesive and resealable labels for the food and household goods market.

Nearly 90% of its sales come from supplying packaging to more than 20,000 businesses up and down the country through its 26 regional distribution centres.

Its market-leading position gives it plenty of leverage with its suppliers, while tailored stock management systems mean its customers can get what they want, when they want it.

Thanks to a better than expected 26% rise in first half revenues, driven by the retail and medical sectors, operating profits more than doubled to £8.5 million.

Given that demand is typically weighted towards the second half, reflecting the busiest trading period for its e-commerce customers, the firm raised its full year earnings guidance, triggering a round of upgrades from analysts which has helped to fuel momentum in the share price.

House broker Shore Capital says the current valuation of 11.7 times forecast full year earnings looks unjustifiably low. [IC]

Sanderson Design (SDG:AIM) 212.5p BUY

Market cap: £150 million

Luxury interior design and furnishings firm Sanderson Design (SDG:AIM) has staged an amazing share price bounce off the Covid lows and is making terrific recovery strides under CEO Lisa Montague’s leadership.

The earnings upgrades required to sustain the share price momentum should come through as the company profits from pent-up demand for home interiors including wallpaper, fabrics, cushions and paints.

Sanderson Design has a long global growth runway, which Montague’s strategy is unlocking through brand elevation, the launch of fewer yet stronger collections and the digitalisation of the business, including the sale of products direct to the consumer.

Blessed with strong brands including Zoffany, Sanderson and Morris & Co, Sanderson Design is growing with multi-channel customers in its focus markets including the UK, Europe and particularly North America, where its distributor Kravet is supporting growth.

In its latest update (20 July), the company said the positive trading seen in February to April continued throughout the opening 23 weeks of the new financial year.

The next potential share price catalyst is the half-year results statement in mid-October, where Sanderson Design will give an update on its planned return to the dividend trail and a further trading update. [JC]

Vitec (VTC) £15.88 BUY

Market cap: £738 million

International provider of premium branded hardware and software products to the content creation market, Vitec (VTC) has been on quite a roll with the shares up 50% over past six months.

We believe the company will benefit from several structural growth drivers which mean growth is likely to accelerate in the coming months while operational leverage will see the business become more profitable.

It’s also worth bearing in mind that analysts have increased their earnings forecasts for this year and next by 32% and 15% respectively over the last six months according to Refinitiv, demonstrating the momentum the business is currently enjoying.

To underline the positive tone management raised full year earnings guidance at the recent August interim results and said that the firm’s addressable market is now larger than pre-pandemic, estimated to be £2.4 billion and expected to grow by high single digits out to 2024 compared with low single digits before.

Growth is being driven by increased demand for, and investment in, original content across TV, films, live sports, video, games and photos.

The combination of Vitec’s broad product portfolio across multiple market segments, along with its entrepreneurial business model and increasing technological competences leave it well positioned to capture sustainable growth. [MGam]

Wilmington (WIL) 222p BUY

Market cap: £190 million

Wilmington (WIL) provides information, data, training and education services in the global governance, risk and compliance markets.

During the pandemic, the firm had to switch from face-to-face training and events to a purely online service, which meant repositioning itself and investing in its digital capabilities.

The fact it finished the year to the end of June beating expectations for revenues, pre-tax earnings and net debt is testament to the strength of its markets, its leading position and the hard work it put in.

Thanks to its strong cash flow generation, the firm was not only able to invest in new products while paying down its debt, but it also returned the furlough support it received from the Government and even reinstated dividends.

Moving forwards, as face-to-face training and events return, that investment in new products is expected to boost revenues and earnings. Meanwhile, the delineation of the business into two divisions – data and information, and training and education – means a clearer focus and tighter control of costs.

As a result, analysts at house broker Numis have raised their earnings and cash flow forecasts.

At the current price the shares trade on just over 14 times next year’s earnings, with a free cash flow yield of 6.6% and a dividend yield of 3.2%, and the firm is expected to generate a return on capital employed of almost 33% compared with 27% this year. [IC]

Warpaint London (W7L:AIM) 211p

Market cap: £180 million

Colour cosmetics supplier Warpaint London (W7L:AIM) has seen its share price more than double over the past six months, yet we believe the positive momentum can be sustained by strong sales growth in its core UK market.

Additional catalysts include progress overseas in the US, Europe and China and attractive online growth off a low base.

The owner of the W7 and Technic brands, Warpaint also supplies white label cosmetics to major high street retailers and sells cosmetics using its other brand names including Man’s Stuff, Body Collection, Very Vegan and Chit Chat.

Shares anticipates a positive outlook statement alongside forthcoming first half results to June which are published on 22 September, as Warpaint capitalises on the post-pandemic reopening of society.

Its brands are performing well in the UK, the growth in W7 UK sales assisted by its rollout into Tesco stores, and there’s enormous potential for growth across the pond, where Warpaint’s products are stocked in the likes of TJ Maxx and Five Below.

For the year to December 2021, Shore Capital sees adjusted pre-tax profit more than doubling to £5 million, ahead of £6.1 million in 2022.

Based on this year’s 5.3p earnings forecast, Warpaint has a premium rating, trading on a prospective price to earnings ratio of almost 40 times, though wins with further retailers could leave estimates looking too conservative.

Unfettered by debt and with £6.6 million cash at last count, management has options to turbocharge growth and there’s a 2.2% yield on offer based on Shore Capital’s current year dividend forecast of 4.7p. [JC]

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