The UK stock market has been attracting attention from value hunters lately. The dramatic price fall in companies such as THG has attracted the interest of potential bidders. But even some companies whose prices have not seen big falls are trading on cheaper valuations than in markets like the US. I have been adding names to my list of UK shares to buy now for my portfolio.
I’m saving to invest my next £1,000, and if I had it now, here is how I would go about it.
UK shares to buy now for growth
With an eye on growth, I would put £250 into each of two well-known names.
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One is the leisurewear retailer JD Sports (LSE: JD). The shares have fared badly recently, tumbling 17% in the past year. But I think the growth story here remains robust. The company posted its best ever interim results in September. Full-year results are expected soon. If they are strong, I think that could help the JD Sports share price recover some of its lost ground.
This is not a complicated business: it is about understanding what customers want, sourcing it cost effectively, and selling it profitably. That means barriers to entry are fairly low and competitors could squeeze profitability. But JD has proven expertise at what it does, which I think could help it keep growing. I see the current share price as a buying opportunity to tuck JD Sports into my portfolio for the long term.
Another growth share I would buy for my portfolio is boohoo. The company has seen its share price tumble into penny stock territory over the past year. I do see legitimate reasons for concern about the business prospects: inflation could eat into profit margins, for example. But boohoo remains in growth mode and has been consistently profitable. Like JD, it has expanded its US footprint and that should improve its economies of scale.
Income shares to buy now
I would put the other half of my £1,000 into shares I hoped could provide me with some passive income in coming years.
One of those would be tobacco manufacturer Imperial Brands. It pays dividends quarterly and currently yields 8.3%. The bedrock of the business is selling cigarettes. Although that is massively cash generative at the moment, as demand falls in most markets I see a risk to revenues. But the company’s pricing power should allow it to increase prices to mitigate some of the impact on profits. Meanwhile, newer product formats could help move the company’s brands into a post-cigarette era.
Another of the UK shares to buy now for my portfolio I like for its income potential is financial services group Direct Line. Like tobacco, insurance has attractive economics. Demand is fairly stable as most people insure their vehicles and homes year after year. Decades of underwriting experience allow a firm like Direct Line to price its services at a profitable level.
Unexpected events like a big storm pose a risk to profits. But over the long term, I reckon the company stands to do well. I would happily add it and its tasty 8.6% yield to my portfolio.
