With the start of a new tax year, I can open up another Stocks and Shares ISA. If I put money in today, here are three UK shares I would be happy to buy straight away.
Unilever
Sometimes, a quality company trades at an attractive price for a long time. There may seem no rush to buy it. But then, quite suddenly, it can move up in price and the chance to buy it at the old level has gone.
That is why I would add buy consumer goods giant Unilever (LSE: ULVR) for my portfolio sooner rather than later. At first glance, there seems no urgency. After all, the shares are 10% below where they were five years ago. Over the past year alone, they have fallen 12%.
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But looking at the big picture, I see the company as the sort of blue chip that will likely be able to profit for decades from its stable of well-known brands such as Lipton and Lynx. By building a business focussed on everyday consumer needs, the company’s products are now used several billion times a day worldwide. That can help it make large revenues and attractive profits. With revenues of around £44bn last year, the company is a financial powerhouse. As the global population continues to grow, the firm’s multinational footprint could help it increase sales over time.
One risk to profits is cost inflation. Making products like soap powder and ice cream requires a lot of things, like ingredients, packaging, and labour. With costs increasing sharply in most of these areas over the past year, profits at Unilever could suffer.
But whatever the short-term challenges, I see the shares as the sort of long-term buy and hold choice I think is ideal for my Stocks and Shares ISA. The shares currently offer me a yield of 4.1%. Today’s Unilever share price is well below what Warren Buffett offered for the company a few years ago. I see it as an attractive buy for my ISA and would consider adding more Unilever shares to it.
JD Sports
The market has not been kind to JD Sports (LSE: JD) lately, marking the shares down 30% so far in 2022. They are down 11% over the past year.
But while the share price has been tumbling, the business has been roaring ahead. The sportswear retailer expects headline profit before tax and exceptional items to come in at £900m or more for last year. That compares with its current market capitalisation of just over £8bn.
The company’s track record of growing revenues and profits is impressive. Given that, the valuation looks cheap to me. What might explain this valuation? One concern is that the end of government stimulus in the US will hurt sales and profits. But I do not see that as very important in the long term. JD Sports had already honed a successful retail formula long before the pandemic and US government stimulus.
I do think there are risks for JD Sports beyond the end of stimulus in the US. The group’s international expansion means its footprint now stretches from Australia to the US. Many international markets already have well-established local players who want to defend their territory. That could lead to price competition and lower profit margins for JD Sports.
But the company has built a strong operation that seems to appeal to customers in a wide variety of markets. It competes both online and in physical stores. I think demand for the products it sells will remain high and JD is well-positioned to capitalise on that. I would consider buying more shares in JD Sports for my ISA.
Persimmon
Often when a share has a double-digit yield, the stock market is sending a signal to investors that the company’s ability to continue its dividend at the current level is in some doubt.
Is that the case at Persimmon (LSE: PSN), with its 10.6% yield? Could it be an attractive purchase for my ISA anyway?
I think the answer to the first question is that it could indeed be difficult for the housebuilder to maintain its dividend at the current level. The dividend is covered by earnings, but only narrowly. Last year, for example, Persimmon paid out dividends of £2.47 per share, while its dividend came in at £2.35 per share. If a housing market downturn leads to earnings falling, it will be hard for the company to maintain the dividend at its current level.
However, almost half the payout is what the company deems the return of surplus capital. Even in a market downturn, it may be able to suspend that payment but maintain its ordinary dividend, in which case the yield at today’s share price would turn out to be 5.6%. I find that attractive.
I reckon Persimmon could be a good long-term addition to my ISA. The company has deep experience in the UK housebuilding market and its business model means it often has high profit margins. Last year, for example, it reported pre-tax profits of £967m on revenues of £3.61bn. That means the pre-tax profit margin was an impressive 27%. Although the future direction of the housing market is unknown, I think there is an ongoing need for more new houses. Persimmon seems well-placed to benefit from that.
Making a move in my new Stocks and Shares ISA
With a new Stocks and Shares ISA allowance come new opportunities.
All three of these shares look attractive to me. I would consider buying them for my ISA today.
