Investor sentiment towards UK shares is extremely depressed at present. However, I think this is a mistake. Granted, the outlook for some UK equities is extremely concerning, but for others, analysts are forecasting significant earnings growth this year. So with that in mind, here are my picks of British stocks for the year ahead.
Top British stocks
I’m focusing on companies with strong competitive advantages and robust balance sheets for the year to come. I think this strategy will allow me to make the most of low valuations across the UK equity market while avoiding disasters.
The home-building sector is one industry where there’s currently plenty of value on offer, in my opinion. Companies like Persimmon and Taylor Wimpey are benefiting from surging demand for new-build properties. They also have solid balance sheets. This has helped them return large chunks of cash to investors in the past.
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As the twin tailwinds of low-interest rates and limited supply continue to push the UK housing market higher, I think these firms should continue to prosper in 2021.
Some financial services firms also make it onto the list of what I believe to be the top British stocks for 2021. Companies like Direct Line and Admiral provide an essential service for UK consumers.
Insurance isn’t the most exciting business, but it provides peace of mind for consumers and can be incredibly profitable if the business is well-managed. Both of those businesses have performed relatively well throughout the pandemic. As the UK economy recovers in 2021, I think this tailwind should help them achieve further growth.
Profiting from volatility
Other stocks in the financial services sector I’m considering buying include NatWest and CMC Markets. NatWest has built up a tremendous amount of excess capital over the past 12 months.
Analysts are speculating that this could lead to a significant special dividend from the enterprise next year. I reckon it might be worth buying into the business before the distribution is announced. Meanwhile, CMC should continue to benefit from volatile financial markets over the next 12 months.
Until the pandemic is well and truly in the rearview mirror, I think the value of many financial assets will continue to jump around. CMC has already seen income jump this year due to market volatility. I think it’s likely 2021 could see a repeat of this performance.
Falling debt
Other British stocks I would consider buying for 2021 include Mr Kipling owner Premier Foods. Since the financial crisis, this company has been struggling with a monumental amount of debt.
However, thanks to a surge in demand for its products this year, the company has been able to reduce borrowings substantially. I think this has put it back on a steady course. If management can build on this success over the next few years, I reckon shares in the food group could end up being one of the best British stocks to own for the next decade.
