Sam is a trader and one of our lead stock analysts at AskTraders. After starting his career predominantly in the forex markets, Sam now focuses on gold and stocks with a preference for macroeconomic analysis.
The AIM or ‘Alternative Investment Market’ is a sub-market of the London Stock Exchange that was launched in June 1995.
The AIM enables smaller companies to raise capital via a listing on a public exchange, in turn, helping them to grow at a faster pace. However, regulation and listing procedures are less stringent, and so, the companies listed are seen as riskier investments.
There are also several well-known companies listed, for example, the largest company by market capitalisation is Boohoo Group who are valued at £3.77 billion, while Asos and YouGov are also AIM stocks.
The launch of the AIM saw ten companies listed with a combined valuation of approximately £82 million. It now has around 850 companies listed with a combined valuation of £104 billion.
So, what are the best AIM shares to buy? Here are some of the best ones:
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4D Pharma (LON: DDDD) is a live biotherapeutics company based in the UK who focuses on using bacteria within the human body as potential new therapies, an area of medicine that is seen as promising within the pharmaceutical field.
Its share price has seen a significant fall in value since its all-time high of 1083p in 2015, currently trading at 113.5p.
However, it has recently benefitted from a high profile trial of its COVID-19 treatment which is now into Phase 2, and it is also exploring treatments in other diseases such as asthma and cancer.
More recently 4D Pharma saw a jump in its share price after announcing a merger with Special Purpose Acquisitions Company (SPAC), Longevity (NASDAQ: LOAC), that will see 4D’s shares traded on the Nasdaq under the ticker symbol LBPS upon completion of the deal. It provides the company access to new funding for its various therapies and will increase interest in the company from healthcare specialists in the US.
With the contract manufacturing market for live biotherapeutics and microbiome products anticipated to be worth $300 million by 2030, according to Roots Analysis, 4D Pharma is one of the best AIM healthcare stocks to buy for a foreseeable future.
No, this isn’t just a list of AIM-listed pharmaceutical companies, but Open Orphan is another company I couldn’t ignore. The business focuses on the testing of vaccines and antivirals through the use of human challenge clinical trials.
Again, another company that is involved in the development of a coronavirus vaccine. Open Orphan’s recently acquired subsidiary, hVIVO, has just signed a contract with the UK government for the development of a COVID-19 human challenge study model to speed up the development of a vaccine. The deal is reportedly said to be worth up to £40 million.
But, let’s look at other aspects of its business…
In its latest interim report, the company said it secured several human challenge studies including a £3.4 million contract with a “major European biotech company,” with an anticipated £7 million follow-on study and a £3.7 million contract with a US biotechnology company.
It was also mentioned that there was a large contract signed with a global leader in vaccine development and the launch of a COVID-19 antibody testing partnership with Quotient.
Open Orphan has significantly trimmed down on excess costs and obtained numerous multi-million-pound contracts.
With its share price currently sitting at 23.5p, I believe it is one to watch out for.
I know, this doesn’t seem like an obvious choice considering the current global economic climate and the fact that Purplebrick’ share price is down 56% for the year to date.
But, during the pandemic, the UK housing market hasn’t slowed down, with a considerable rise in home buying and selling in the past few months as buyers look to benefit from the UK stamp duty holiday that ends in March 2021.
The stamp duty holiday means that anyone who buys a property worth less than £500,000 before the deadline will pay nothing in stamp duty tax. After the holiday was announced, Purplebricks saw a record month with more than 7,000 homes listed with the majority of these homes under the £500,000 threshold.
Now, I’m not suggesting Purplebricks as a long term hold in your portfolio as I do think there will be issues with the housing market further down the line. Still, in the short to medium term Purplebricks’ share price could see a rise as people scramble to buy homes and beat the deadline.
Its shares are currently valued at 56.2p at the time of writing and have seen an over 50% move in the last six months, but I still think there is some room to move higher.
Greatland Gold shares have seen enormous growth this year, up 1,261%. Back in January they were trading at a little under 2p per share and are now priced at 24.35p.
Of course, there will be many investors sitting on handsome profits after such a tremendous move, and we could see a pullback as profits are taken.
With the price of gold reaching $2,000 earlier this year, it is no wonder Greatland’s shares have seen such a surge, but with gold currently stalling around the $1,900 level, is there room for Greatland’s shares to move higher?
In August the company commenced drilling on the Scallywag prospect in the Paterson region of Australia, and they have more recently been granted a mining lease for the Havieron gold-copper deposit.
Another point of note is that several employees of the company have exercised share options which is always a positive sign.
I believe we could see an initial pullback in Greatlands share price as investors take some profits off of the table. Still, I ultimately feel the prospects for the company are positive, and its share price can continue to push higher.
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Buying shares of companies listed on the AIM market provides a fantastic opportunity to invest in young companies with strong growth potential.
However, finding those companies is the tricky part, but if you are lucky enough to, the potential return on your investment can be enormous compared to other asset classes.
While there are many young and growing companies within the AIM market, there are also companies that have already seen rapid growth.
Take Boohoo Group, a company who has been labelled the “king of AIM”. The online fashion retailer was founded in 2006 and first listed in 2014.
Its share price started at 85p per share before falling as low as 21p in 2015. It has since seen enormous growth with sales revenue now around £1.2 billion.
Now, of course, everyone is after a deal…
And, investing in an AIM-listed company represents the opportunity to purchase shares at a very reasonable price.
Take Open Orphan (LON: ORPH) or Greatland Gold (LON: GGP), who I mentioned earlier, their share prices are currently valued at 25p and 24.24p respectively.
There are a lot of companies listed on the market with shares trading at low prices, just keep in mind that they are cheap for a reason.
Investing in AIM companies comes with a higher risk due to the more relaxed listing requirements, meaning that they attract a particular type of company.
For example, to be listed on the primary market, such as the FTSE 100 or 250, a company will need to provide a track record of audited financial records over a specified amount of years.
However, listing on the AIM market does not require such an extensive track record, and so, it inherently means that companies listed will be riskier.
AIM shares can be highly volatile, and it is not out of the norm for a company in the AIM to see big swings in price each day.
This means that while there is the potential for big profits, there is also the potential for large losses, so it is essential to consider that when purchasing shares.
The utmost important thing to do when you consider investing in an AIM company is to conduct thorough research into the company beforehand.
There are many examples of AIM companies failing after a brief period of relative success, so research will be key to help avoid that trap.
Many of the companies listed are also losing money so it is vital you find out as much as possible about the company before investing money into them.
A great place to look through the various AIM companies is aimlisting.
Here you can view the over 850 companies listed and use the filters to find the company or companies you are searching for.
For example, suppose you believe that travel and leisure companies are going to bounce back once the COVID-19 pandemic restrictions begin to ease, you can use the site to specifically search for businesses in that industry.
Remember, investing in AIM shares comes with a lot of risks, so our advice would be, to allocate a small portion of your portfolio into the AIM market if you find an area that represents an opportunity for growth.
If you conduct thorough research and analysis, there is a possibility of picking a company that goes on to become very successful. However, you have to be prepared for high levels of volatility.
If you buy AIM shares on an ISA account, you will not need to pay tax on any profits you make, nor any dividends you receive. You also won’t need to pay Capital Gains Tax.
However, if you invest in AIM shares outside of an ISA you will need to pay Capital Gains Tax on profits above the tax-free threshold.
The FTSE AIM All-Share is a stock market index that comprises all of the companies listed on the AIM that meet specific requirements.
Are AIM shares allowed in ISA?
Yes. AIM shares are allowed to be bought through a stocks and shares ISA account.
They were previously considered to be too risky for an ISA but became eligible in 2013.
With AIM shares, if they are suspended from trading for six months they will be cancelled from trading.
However, in some cases, companies are able to obtain an extension.
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