UK shares have performed well recently. Since the start of November, the FTSE 100 index has risen about 17%. There could be further gains to come in 2021 however. Now that there’s a Covid-19 vaccine, sentiment towards the UK market is improving dramatically. Goldman Sachs, for example, just told its clients to buy UK equities.
Of course, stock selection is likely to be important in 2021. The pandemic isn’t over yet. Some companies are likely to face challenges in the year ahead. With that in mind, here’s a look at seven UK shares I like for next year.
UK shares for 2021
Starting with large-cap UK shares, one company that strikes me as a good play for 2021 is FTSE 100 consumer goods champion Reckitt Benckiser. Why? It owns Dettol and Lysol. Even with a coronavirus vaccine, I expect hygiene to remain in focus. It’s worth pointing out that in the last few weeks, the CEO and chairman have spent about £750k on the stock. Clearly, these insiders expect the share price to rise in 2021.
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Another FTSE 100 stock I like next year is BAE Systems. It’s held up pretty well this year due to the fact that its revenues are largely government-backed. Looking ahead, it should benefit from the £16.5bn defence spending boom the UK government recently announced. BAE shares are currently about 25% below their 52-week high and trading on a P/E of 10. I see upside potential here.
Packaging specialist DS Smith has also held up well this year, benefitting from the online shopping boom. Recently, it announced plans to reintroduce its dividend and said it has confidence in the business going forward. I think this stock could benefit as sentiment towards UK shares improves.
I also like financial services giant Legal & General going into 2021. It didn’t cut or cancel its dividend this year. Looking ahead, I think it has plenty of growth potential in the retirement space. With the stock still more than 20% below its 2020 high and trading on a P/E ratio of about eight, I see potential for share price gains.
Growth stocks
Outside the FTSE 100, I like Softcat. It’s a FTSE 250 technology company that helps organisations with their IT infrastructure. I expect digital transformation (cloud, cybersecurity, data analytics, etc.) to remain a big theme in 2021. Recently, the company said it has “positive momentum.” Although Softcat’s share price has gone nowhere over the last 12 months, I think it’s only a matter of time until this growth stock moves higher.
Another technology stock I’m bullish on is online fashion retailer ASOS. It’s had a good run this year as online sales have increased due to the pandemic. For the year ended 31 August, profit before tax was up 329%. I think ASOS shares have the potential to keep rising however. Digital habits we’ve picked up during Covid-19 are likely to stick around.
A small-cap play for 2021
Finally, in the small-cap space, I think Keystone Law has a lot of potential. It’s an innovative legal company that’s disrupting its industry. Keystone recently announced it’s continued to see a recovery across all areas of its business, with like-for-like performance having now returned to very-near-pre-Covid levels. As a result, it now expects to deliver profits for the year comfortably ahead of current market expectations. As sentiment towards UK shares improves, this stock should benefit.
