When I’m looking for UK shares to buy, I like to concentrate on companies with high profit margins and defined competitive advantages.
Here are five businesses that exhibit these qualities, which I would buy for my portfolio today.
UK shares to buy
The first company on my list is the insurance group, Hiscox. This firm’s brand was dented by its refusal to pay out business interruption policies during the pandemic. After a court ruling against the organisation, it is now trying to move on from these issues.
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While the reputational damage has been significant, I think Hiscox can use its global brand and experience to return to growth in the years ahead. It is also benefiting from rising insurance rates around the world. The main challenges the firm faces are high levels of competition, which could harm profit margins and lower returns on its investment portfolio due to low bond yields.
I would also buy materials groups CRH and Breedon for my portfolio of UK shares.
It is pretty challenging to operate a construction materials business. Getting the permissions required to open a mine or cement plant is not easy, and it is only going to become more complex as countries clamp down on polluting industries.
Luckily, CRH and Breedon already have the facilities. I think this is their competitive advantage. And with this advantage in place, they have a certain level of pricing power. I would buy both stocks for these reasons.
Still, while the groups will benefit from having existing facilities, ESG requirements may lead to higher costs. The two firms may also suffer from a slump in construction activity.
Property market growth
As well as the companies outlined above, I would buy a couple of property stocks for my basket of UK shares.
These operations do not necessarily have high profit margins and defined competitive advantages. However, I believe the property market in the country is so strong at the moment, they should see strong growth from rising demand.
The UK shares I would buy to invest in this theme are Savills and Foxtons. Both of them have strong brands. Savills is recognised the world over for its property expertise. Meanwhile, Foxtons is one of London’s premier estate agents.
Their strong brands allow these firms to pick the market’s best opportunities. While they are, to a certain extent, dependent on the strength of the property market, that does not mean they cannot set prices. Using their commission-based model, they can earn high returns from selling premium properties.
As the property market booms and global wealth expands, it seems to me that property transaction volumes will remain elevated.
That being said, the market could take a turn for the worst if interest rates rise. This would increase the cost of borrowing and may reduce the demand for high-end properties.
