Why I think these are three of the best shares to buy for 2021

This year’s tech stock rally has been impressive, but Roland Head believes the best shares to buy now can be found elsewhere in the market.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »