As we head into the final weeks of 2020, I’ve been turning my thoughts to the year ahead. I think the best shares to buy for 2021 will tick two boxes.
First, they’ll benefit from a return to normal. Second, they’ll be defensive and flexible enough to cope if things don’t return to normal straight away — or if we face a tough recession.
For this piece, I’ve picked three UK shares I’d happily buy today and hold through the coming year.
CEO’s £500k share buy
My first choice is FTSE 100 consumer goods group Reckitt Benckiser (LSE: RB). Reckitt’s shift to hygiene and health-related products has paid off this year. Like-for-like sales rose by 12% during the first nine months of the year, thanks to soaring demand for disinfectant brands Dettol and Lysol.
However, it’s not all been plain sailing. Sales of infant formula milk have been hit by restrictions on unofficial imports into China, while lockdown meant Durex sales have also suffered.
Reckitt’s share price has fallen by 20% in recent months, down from the £80 peak seen in July. The market appears to be taking a more cautious view, perhaps because the group still needs to prove it can return to sustainable growth.
Interestingly, Reckitt’s two top directors have been taking advantage of the share price fall to buy stock. CEO Laxman Narasimhan recently spent over £500,000 buying the firm’s shares. Chairman Christopher Sinclair has also been buying, with a £248,000 purchase on 20 November.
Better than supermarkets?
Shares in meat producer Cranswick (LSE: CWK) have risen by nearly 90% over the last five years. That’s a much better performance than any of the big supermarkets who buy meat from Cranswick.
One reason for this might be that its large and focused operations are more profitable than supermarkets. The company generated an operating profit of 6.2% last year. Tesco managed just 3.9%.
Cranswick has also delivered reliable growth for many years. Sales have risen by 80% since 2015, while profits have doubled. The big supermarkets can’t manage this kind of growth.
Of course, Cranswick’s success isn’t a secret. The shares currently trade on about 20 times forecast earnings, with an expected dividend yield of just 1.9%. Although that may not be cheap, I think this is a good business. I’d be happy to buy shares for my long-term portfolio at this level.
A bargain buy?
Cranswick’s high valuation reflects its track record of growth. I see this as a sign of what could be possible for Tate & Lyle (LSE: TATE). This group produces sweeteners and specialist ingredients for food producers.
Tate’s dividend hasn’t been cut for more than 20 years and its financial position looks strong to me. The only problem I can see with the business is that growth has been slow for a number of years. This is reflected in the stock’s modest valuation on 12 times forecast earnings, with a 4.6% yield.
I don’t think this situation will remain unchanged forever. At some point, I believe the business will find a way to generate new growth. If it does, then I’d expect Tate’s share price to rise significantly from current levels.
I see Tate & Lyle shares as a potential win-win for my portfolio, providing attractive income and interesting growth potential.
