UK Markets closed

Stock market melt-up! I’d buy these 2 UK shares for the next stage of the recovery

Harvey Jones
·3-min read
Businessman standing in front of screen
Businessman standing in front of screen

After the stock market meltdown, we have now have the ‘melt-up’ and I’m hunting for UK shares with renewed optimism. The benefits of the US election result and Pfizer‘s Covid-19 vaccine may have been overstated, but they indicate light at the end of a long, dark tunnel.

The following two household name UK shares have just delivered updates suggesting they are over the worst of this year’s troubles. I’m tempted to add both to my portfolio.

I’m watching the Burberry share price

In my search for UK shares, FTSE 100 luxury fashion group Burberry Group (LSE: BRBY) has long been high on my watchlist. It’s usually expensive though, trading at around 25 times earnings, typically.

Today, Burberry posted a painful 30% drop in half-year revenue to £878m. Operating profit for the six months to 26 September fell by three quarters from £203m to £51m. That’s Covid for you. The good news is that business was brisk in the second quarter as stores reopened, although that could reverse now due to lockdown 2.0.

Q2 sales grew by double-digits in mainland China, Korea and the US. The drop in tourism hit Europe, the Middle East and Japan.

Burberry’s shares have jumped more than 4% as investors welcomed signs that it is attracting new, younger customers. I think Burberry now looks better placed than many UK shares when the pandemic recedes. It is relatively cheap by its standards, trading just over 20 times earnings. For most UK shares, that would be expensive. Not for Burberry though, and I’d buy it for the long term.

UK shares like ITV give me hope

Broadcaster ITV (LSE: ITV) fell out of the FTSE 100 in September as advertising revenues and studio activity slumped in the pandemic. The ITV share price recovered quickly after the first lockdown, rising almost 50%, but is down two-thirds measured over five years. As with many UK shares, the pandemic is hiding long-term challenges.

In today’s Q3 update, the Love Island and I’m A Celebrity broadcaster reported a 16% drop in revenue over nine months to £2.17bn. However, it said Q4 advertising revenues should rise slightly year-on-year, while 85% of paused productions are back on track or have been delivered.

Broadcast revenue fell 13% to £1.27bn with production income down 19% to £902m. On the plus side, ITV’s total viewing was up 2%.

The pandemic has been a mixed bag bag for ITV, as with many UK shares. Locked-down viewers are hungry for content, but ITV Studios has struggled to produce content because of coronavirus restrictions. Lockdown 2.0 isn’t helping. ITV faces tough competition though, as it is competing with the likes of Netflix for eyeballs. Its BBC joint venture Britbox could drive much-needed international sales, assuming there is a global market for our domestic TV.

ITV is one of many cheap UK shares on the market, trading at 6.45 times earnings. I’d consider buying both today, but I’d plump for Burberry first, despite its luxury price.

The post Stock market melt-up! I’d buy these 2 UK shares for the next stage of the recovery appeared first on The Motley Fool UK.

More reading

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and ITV. 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 2020