I reckon there are some great stocks to buy that offer excellent long-term growth prospects.
Two options are dotDigital (LSE: DOTD) and Kainos Group (LSE: KNOS). Here’s why I’d buy both stocks when I next have some investable cash.
dotDigital
dotDigital is a software-as-a-service (SaaS) business. It provides bespoke software to businesses. dotDigital’s offering is tailored around digital marketing and e-commerce platforms.
Over a 12-month period, the shares are up 9%, from 88p at this time last year, to current levels of 96p.
I reckon dotDigital has benefitted from the e-commerce and digital marketing boom. Shopping and marketing has transitioned more towards online methods in recent years. With that trend set to continue, the business could also continue to benefit and find its shares climbing. Plus, performance and investor returns could grow too.
Speaking of returns, a dividend yield of 1% as I write could grow in line with the business moving forward. However, dividends are never guaranteed.
A credible risk to dotDigital’s progress is current volatility. Plus, it is a relatively small fish in a large pond. If economic turbulence continues, its customers may curb spending on SaaS solutions as they rein in spending. On the second risk, there are larger, more established firms that may look to lodge a takeover bid.
I find myself excited by dotDigital’s track record of growth, and potential future direction. I do understand past performance is not a guarantee of the future. However, if it can continue in a similar vein, there are some lucrative times ahead, in my opinion. Plus, its valuation — a price-to-earnings ratio of close to 21 — is enticing for a software firm with a recurring revenue business model in a burgeoning sector.
Kainos Group
Kainos helps other firms become more efficient using digital solutions.
Over a 12-month period, the shares are down 21%, from 1,485p at this time last year, to current levels of 1,163p. Recent economic turbulence hasn’t helped the shares, but I view it as an opportunity to buy at a cheaper price.
Kainos’ deep-seated and lucrative relationship with software giant Workday is a major draw for me. Workday provides human capital management solutions to corporate structures. Kainos has access to Workday’s enviable client list. One standout name for me is Netflix, to give you an example. This continued relationship is key to Kainos’ growth in the future and could catapult it to new heights.
The obvious risk for me is if that relationship sours, for whatever reason. However, that seems highly unlikely at this stage based on just how much the two firms continue to develop and strengthen their partnership. If it were to break down, Kainos could see performance drop sharply, impacting returns.
Kainos has been performing well and already pays a dividend, with a yield of 2.2%. As with dotDigital, I’d hope this could grow over time too.
Recent volatility has shown the corporate world that efficiency is a must, now more than ever. With Kainos’ links to Workday and great track record, I reckon it will continue to grow over time. It’s on an exciting upwards trajectory.
The post Looking for quality stocks to buy? I’d snap up these 2 picks! appeared first on The Motley Fool UK.
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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Dotdigital Group Plc and Kainos Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
