UK shares are having a good run at the moment and outperforming other equity markets. This year, the FTSE 100 index is up about 3%. By contrast, America’s S&P 500 index is down about 9%.
While there’s no guarantee that the Footsie will continue to outperform the S&P 500 going forward, I have a bullish view on a lot of UK shares right now. With that in mind, here’s a look at two British stocks I’d buy today.
A FTSE 100 company with long-term growth potential
First up is FTSE 100 company Prudential (LSE: PRU). It’s a leading insurance company that’s now focused predominantly on Asian and African markets. This stock looks quite cheap at the moment. Currently, it has a forward-looking P/E ratio of just 14.
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Prudential’s pivot towards Asia and Africa appears to be paying off. For the first half of 2021, for example, adjusted operating profit from continuing operations jumped 19% at constant currency to $1,571m.
Looking ahead, I see considerable growth potential here. Asia and Africa are untapped markets when it comes to savings and insurance solutions. Prudential believes that if it can execute its strategy successfully, it can achieve long-term double-digit growth in embedded value per share.
One issue that investors should be aware of with Prudential is that CEO Mike Wells recently announced his retirement. Wells has been instrumental in pivoting the company towards higher-growth markets, so his retirement adds a bit of uncertainty. This doesn’t concern me too much, however, as I’d expect the board to find a suitable replacement.
It’s worth pointing out that a number of brokers are quite bullish on PRU right now. Recently, Goldman Sachs initiated coverage of the stock with a ‘buy’ rating and target price of 1,761p. Meanwhile, Jefferies recently raised its target price to 1,800p from 1,750p. This reinforces my view that there’s a lot of investment appeal here at present.
A FTSE 250 star at the heart of a powerful trend
Another UK stock I like the look of right now is Softcat (LSE: SCT), which is a member of the FTSE 250 index. It provides IT solutions to businesses and public sector organisations across the UK. This stock has had a significant pullback recently and now offers more value than it did in the past.
SCT lies at the heart of one of the most dominant trends on the planet today and that’s digital transformation. All over the UK, businesses and government organisations are scrambling to get up-to-speed digitally. They’re moving their operations to the cloud, they’re investing in cybersecurity software, and they’re seeking out data analytics solutions. This is benefiting Softcat, which can provide all of these things for customers, and much more.
A look at Softcat’s financials reveals that this is a high-quality company. Not only has the group generated strong revenue growth over the last five years (72%), but it has also generated high returns on capital employed. Additionally, it has raised its dividend significantly over the period. Overall, the financials here are very impressive, to my mind.
The valuation here does add a little bit of risk. At present, SCT has a forward-looking P/E ratio of about 32. This doesn’t leave a huge margin of safety. If growth slows down, the stock could underperform.
I’d be comfortable buying the stock at that valuation, however. To my mind, this growth stock deserves a premium valuation.
