I think I see the greatest number of top-value UK shares out there that we’ve had for some time. And it makes my investing decisions tricky. I have a shortlist of more than a dozen that I’d be happy to buy right now.
I’m tempted to top up on some fallen ones I already own, and perhaps buy some more Persimmon or Boohoo. But I really want to improve my diversification. Today I’m examining three that I might buy next.
I come back to Darktrace (LSE: DARK) whenever I’m thinking about a purchase. The cybersecurity specialist was a bit of a bubble stock in 2021, when it appeared overhyped.
Since then, the share price has fallen back, and the short-sellers have moved on to other pickings. Valuation is difficult, with no profit expected this year. But forecasts suggest a tiny one for 2023, followed by further earnings growth.
Traditional advice might be to avoid growth stocks when we’re heading into a recession. But I rarely pay much attention to that. As long as I think Darktrace can make it through to profit without any great challenges, then the long-term potential is all that matters to me.
It’s risky, and I usually invest for dividends. But part of me wants to buy some.
The investment business itself is under fierce pressure. That brings M&G (LSE: MNG) to mind. I see the investment manager as a good long-term prospect, and its recent share price weakness makes me think it’s a buy.
We’re looking at a 12% fall over the past 12 months. And that’s pushed the forecast dividend yield up above 10%. I think it’s unlikely to be sustained at that level, and I half expect a cut to be on the cards. But I see sufficient safety for M&G to absorb the coming pressure and keep earning cash for shareholders.
The main risk I see is a threat to incoming investment funds as the likely recession progresses over the next year or two. So there could be some short-term weakness ahead.
I keep coming back to a perennial favourite, which I’ve never bought. I’m thinking about Tesco (LSE: TSCO), the UK’s leading supermarket chain. The share price has fallen 17% over the past 12 months.
But it’s been picking up since October. Forecasts put the shares on a price-to-earnings (P/E) ratio of under 12, with a 4.5% dividend yield.
Neither of those measures are the best on the UK stock market. But for a top quality FTSE 100 company with good defensive qualities, Tesco looks cheap to me.
The risk is short-term price competition. I can see Lidl and Aldi continuing to advance their market share, and I expect margins to be squeezed. Still, Tesco looks solid with 27% of the market, according to Kantar.
All three of these face their own individual risks. But taken together, I’d buy them all if I had enough money. As it is, they remain among the top candidates for my next investment.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022