Three solid Aim stocks to buy now

Many Aim-listed stocks if held for two years, are exempt from inheritance tax. Here, professional investor James Rae picks three Aim stocks to buy now.

Each week, aprofessional investor tells us where he'd put his money. This week: James Rae ofCharles Stanley.

Having paid taxes all your life you could be forgiven for wanting to save your children from a large tax bill when you pass away. One method of avoiding inheritance tax (IHT) is through investing in shares quoted on the Aim, the London Stock Exchange's junior market, many of which qualify for business relief. If these shares are held for two years and are still held at the date of death, then they can be exempt from IHT. Avoiding IHT in this way means you keep access to your capital and doesn't involve you in the legalcomplexities or cost of many other IHT-avoidance schemes.

The Aim market is often associated with failing startup companies and volatile resource stocks, but this is to ignore the quality of many Aim companies, which are highly cash-generative businesses that are market leaders in their respective niches. In addition, many of these companies have a high degree of management ownership (often the founders of the business), which creates a solid platform for strong performance.

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Many investors are concerned about the state of the UK economy and are looking for themes that may provide some relative resilience. The pet market is relatively immune to economic pressure as owners increasingly treat pets as an additional child. One way to play this theme is through CVS Group (Aim: CVSG); the leading provider of veterinary services in the UK. It has strong cash flow, which it uses to acquire additional veterinary surgeries across the country. As the group grows, its competitive advantage increases as economies of scale lower the prices they pay for drugs and other supplies. In addition, the group benefits from referring work internally to its laboratories and pet crematoriums. The stock is relatively expensive, but it looks set for continued growth in the UK and through expansion into the Netherlands.

Restore (Aim: RST) is the largest UK-owned document-management business, caring for more than 14 million boxes in secure buildings nationwide. Despite the growth of cloud services, the need for physical storage remains and Restore continues to grow its business organically and through acquisition. Annual storage fees create recurring revenues and expansion in its shredding, scanning and office-relocation businesses will provide cross-selling opportunities.

Renew Holdings (Aim: RNWH) is a highly specialised engineering-services business with excellent revenue visibility. The company has healthy margins, strong cash generation and a growing order book. Crucially, the vast majority of its revenues arise from necessary maintenance operations. These include helping to decommission the Sellafield nuclear site and maintaining tunnels and embankments for Network Rail. The shares feel too cheap on a price/earnings ratio of 14 times, considering the order book strength and potential for growth through acquisitions.

James Rae is a portfolio manager at Charles Stanley