My top 10 best UK stocks to buy now with £10k

Where should I put fresh cash to work in today’s stock market? Here, I’m going to take a look at shares I think are among the top 10 best UK stocks to buy now.

I’ve divided my selections up into five different sectors. This shows how I could buy these stocks to form a mini portfolio with some diversification. For me, this is essential for peace of mind. I don’t know what’s around the corner, so I want a mix of stocks that will perform well in different situations.

Financials: top stocks to buy for income

I’ve got two financials on my top 10 list. The first is FTSE 250 financial trading firm IG Group. This business benefits from volatile markets, which lead to an increase in trading activity. IG reported record profits in 2020 and 2021. I see this stock as a kind of insurance policy.

The main risk is that IG’s profits can be volatile and may be threatened by tighter regulation in the future. However, as the market leader, I think IG is likely to remain successful. The shares currently offer a dividend yield of 5.2%. I’d be buying if I wasn’t already a shareholder.

FTSE 100 bank NatWest Group is rather different. The bank’s profits could be hit by a UK recession due to its exposure to the housing sector and UK economy.

However, the bank seems to be in good shape at the moment, NatWest reported profits of almost £3bn last year. Analysts’ forecasts suggest further growth in 2022.

NatWest shares are currently trading below book value and have a forecast yield of 5.9% for this year. I think they look attractive.

Defensive safety

Inflation is eating into the value of Briton’s take-home pay. I reckon there’s a risk the UK could fall into recession. To give some protection from cyclical risks, I’ve included a couple of defensive stocks on my top 10 list of stocks to buy now.

FTSE 100 stalwart Tesco is the UK’s largest supermarket. It has big economies of scale and a 27% share of the grocery market. Tesco’s profits rose during the 2008/9 recession. I’d expect it to be a reliable performer if we face another slowdown.

The main disadvantage I can see is that Tesco’s large size and low margins mean growth is always likely to be slow. In a strong economy, I think it might underperform the growth of the wider market.

Even so, I think Tesco shares look good value on 12 times forecast earnings, with a well-supported dividend yield of 4%.

My second pick is more controversial. Tobacco group Imperial Brands triggers ethical objections for many investors and is battling falling smoking rates in some of its main markets. However, this business is highly profitable and still has good scale. Investment in less-harmful products is starting to deliver positive results.

Imperial’s cash generation is strong and its 8% dividend yield looks safe to me. I hold this FTSE 100 share in my income portfolio.

My top UK cyclical stocks

Cyclical companies can benefit in strong economic conditions, but may see profits fall during a recession. I’ve selected three UK cyclicals that look reasonably valued to me.

Housebuilder Redrow is one of my top picks in the construction sector. Founder Steve Morgan is still the company’s largest shareholder, and Redrow’s 5.7% dividend yield looks very safe to me.

Shares in the housebuilding sector have sold off this year. I reckon this is due to recession fears and rising costs relating to the cladding scandal.

Redrow isn’t immune to these risks. But the shares now trade below book value, on just six times forecast earnings. I reckon that’s cheap enough to price in most known risks. I’d be happy to buy at this level.

My other cyclical picks are both companies which serve the needs of other businesses and public sector organisations.

Van hire group Redde Northgate provides services including long-term hire, fleet management and accident repair. IT group Computacenter specialises in providing the hardware, software and services organisations need to run their operations.

Both companies could see demand ease and profits slump if the UK does suffer a recession. But, in my view, they’re both good operators trading at reasonable valuations. They’re on my list of top UK stocks to buy now.

Energy and materials

The soaring price of energy and other commodities is making headlines at the moment. I’m not keen on buying commodity producers when prices are so high. But I do want some exposure to this area.

To achieve this, I’ve chosen three stocks. The first is FTSE 100 group DCC. This Irish business is a distribution specialist and delivers fuels including petrol, diesel, and LPG to customers all over the UK.

DCC also has a medical business and a fast-growing technology business in the USA, which provides logistics services for manufacturer and retailers. DCC’s profit growth has slowed in recent years and the share price has cooled. I think this is a buying opportunity. I’ve been building a position in my portfolio.

I’m also keen on exposure to renewable energy, but I only want to invest in profitable, dividend-paying companies. For these reasons, my chosen renewable stock is The Renewables Infrastructure Group (TRIG). This investment trust invests in wind and solar farms across the UK and in Europe.

My main concern here is that volatile wholesale energy prices could put pressure on future profits, as government subsidy schemes end. But TRIG has experienced management and a good record since listing in 2013. The stock’s 5% yield looks safe to me.

I’m avoiding miners right now. But I am invested in FTSE 100 group DS Smith, which produces and recycles cardboard packaging.

High raw material prices and supply disruption are potential risks. But I think that the group’s focus on sustainability and consumer packaging should support continued growth and provide some pricing power.

DS Smith shares look cheap to me on less than nine times forecast earnings, with a 4.8% yield. I own this stock already, but I’d happily buy it today.