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I think these small-caps could be too cheap to ignore this month. Here’s why they’re worth serious consideration.
SThree
The steady adoption of artificial intelligence (AI) is providing significant challenges for the recruitment sector. According to job search platform Adzuna, the number of new entry-level roles in the UK has slumped 32% since November 2022. That coincides with the launch of the first mass-used chatbot ChatGPT.
As generative AI systems get smarter, the switching out of human roles for machines looks set to accelerate. Yet I still believe some recruitments stocks — one of which is SThree (LSE:STEM) — still demands serious consideration.
This company’s focused on STEM roles (those in the science, technology, engineering and mathematics sectors). The emergence of AI means job roles here are evolving rather than disappearing, meaning there’s still room for significant growth thanks to phenomena like the booming digital economy, rising defence expenditure and soaring healthcare demand.
SThree has seen profits slide recently as higher interest rates have sapped company hiring. City analysts are tipping another earnings drop (62%) in the 12 months to November too.
However, its bottom line’s expected to recover strongly beyond then, with rises of 22% and 28% pencilled in for fiscals 2026 and 2027 respectively. Current projections reflect expectations of recovering markets, and the company’s restructuring efforts in the US and UK.
These projections leave SThree’s shares looking attractive from a value perspective too. At 244p per share, its price-to-earnings growth (PEG) ratios for these years are 0.6 and 0.4, well below the bargain threshold of 1.
While it’s not without risk, I think they’re worth serious consideration at current prices. It also offers a healthy 5.8% dividend yield on predicted shareholder payouts through to fiscal 2027.
Baillie Gifford European Growth Trust
The Baillie Gifford European Growth Trust (LSE:BGEU) has risen sharply in value in recent months. This reflects a broad improvement in market sentiment and, more specifically, rising demand for European shares as investors switch out of the US.
Yet this small-cap trust still offers tasty value for money at 101.5p. It trades at a 9% discount to its estimated net asset value (NAV) per share, meriting close attention, in my book.
The fund aims to grow through a portfolio of 30-60 companies from across Mainland Europe (current count: 45). These range from Dutch software provider Topicus.com to Irish airline Ryanair, and Swiss pharmaceuticals giant Novo Nordisk. This helps protect overall returns from weakness in one or two countries and/or industries.
Another reason I like this Baillie Gifford product is it also invests in private companies I wouldn’t be able to buy on an exchange. One example is Bending Spoons, an Italian mobile app developer whose annual revenues rose around a quarter in 2024.
On the downside, the European growth trust could deliver poor returns if the eurozone economy struggles. But I’m optimistic returns will pick up as interest rates fall and broader appetite for continental shares improves.
