2022 has, so far, created several exciting opportunities to buy some top UK stocks. Multiple leading businesses have seen their share prices slashed, due to rising uncertainty surrounding inflation, Covid-19, Brexit and related supply chain disruptions.
But, in many cases, these are ultimately short-term problems and don’t jeopardise long-term growth prospects. So if I had £1,000 to invest, which top UK stocks would I buy today?
A top UK stock on sale?
Games Workshop (LSE:GAW) shares have had a pretty rough run so far this year. Since the start of 2022, the stock has fallen by just over 13%. And this downward momentum has pushed its 12-month return to a disappointing -19% for existing shareholders.
As a reminder, Games Workshop is the company behind the vastly popular Warhammer franchise. The group makes its money by selling collectable miniatures that hobbyists can paint and then use to play the tabletop strategy game.
While, for some, this may not sound like the most lucrative venture, the fanbase behind the franchise is enormous. And, consequently, revenues over the last five years have grown by an impressive annual average of 23%.
What’s more, with additional income streaming in from royalty licensing agreements on video games, this growth rate could be set to accelerate even further. But if that’s the case, why has this potentially top UK stock performed so poorly lately?
Looking at its recently-released half-year report, revenue continued to grow, but profits were down. On closer inspection, it seems the group’s margins are facing increased pressure due to higher freight and raw material costs. This is somewhat concerning, especially since the group’s pricing power hasn’t mitigated the impact on margins.
However, since these higher expenses are mostly driven by Covid-19 disruptions, they could diminish once the pandemic ends. If that’s the case, the recent share price drop could be an excellent opportunity to add this top UK stock to my portfolio at a discount.
Digitalising business
Another top UK stock that’s been hit hard recently is Kainos Group (LSE:KNOS). The company specialises in helping corporations and governments digitalise their operations to improve efficiency and reduce costs. Over the last 12 months, its shares have actually performed rather well, generating a return of over 45%. But since the start of 2022 performance has suffered, with the stock falling by 10%.
There are undoubtedly numerous forces at work here. However, primarily, fears centre on the effects of the pandemic. Last November, the group watched its stock plummet by a similar amount following its interim results. Revenues were up by an impressive 33%. But profits only grew by 3%, due to margins getting squeezed by the pandemic.
With UK infection rates near an all-time high and Covid variants continuing to develop, I’m not surprised to see fears of further margin cuts on the rise for this business. Needless to say, that’s not good news.
However, just like Games Workshop, profit margins may simply return to normal levels once the pandemic ends. And given revenues continue to climb thanks to increasing demand for its services, I think there is plenty of growth potential waiting to be unlocked. That’s why I personally believe the recent price cut of this top UK stock is an excellent buying opportunity for my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Games Workshop and Kainos. 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.
