5 UK shares I’d buy and 5 I’d avoid in 2021

Even in a fast-rising market, the quality of a business is still important. G A Chester highlights some of his best and worst UK shares.

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.

The stock market made an impressive recovery last year, following the spring crash. And with UK shares also starting 2021 strongly, sentiment is clearly improving.

They say a rising tide lifts all boats. But I don’t see this as a reason to be complacent about the quality of the businesses we invest in. With this in mind, here are five UK shares I’d be happy to buy and five I’d avoid.

Contrasting technology stocks

Supply@ME Capital has negligible revenue, but a market capitalisation of £197m. With directors offloading shares — and the company’s nascent “Inventory Monetisation©” fintech platform (using “innovative legal schemes”) unproven in practice — I’m avoiding the stock.

But I’d gladly buy shares in £6.3bn-cap Sage. It’s the global leader in technology that helps small- and medium-sized businesses manage their supply chains, inventory, invoicing, payments, cash flows, tax, and so on. Good profit margins and cash conversion point to a high-quality business.

Silver screen UK shares

International cinema group Cineworld had a weak balance sheet even before the pandemic. This was due to a risky debt-fuelled acquisition strategy. The £930m-cap firm last reported net debt of an eye-watering $8.2bn. I’m avoiding it, because I think a painful financial restructuring is inevitable.

But I reckon smaller UK chain Everyman is very buyable. It had a stronger balance sheet pre-pandemic, and reinforced it with an early equity fundraising. The £93m-cap company last reported net debt of £82.7m. Post-pandemic, I think it can resume its prudently-paced growth.

Forget jam tomorrow

The £95m market valuation of Versarien seems to rest on hopes for its graphene business. However, a multitude of collaborations announced in recent years have produced very little revenue (£142,000 last year). It looks a perennial jam-tomorrow stock to me, so I’m avoiding it.

However, I’d happily buy £1.9bn-cap stock Synthomer. This speciality chemicals group made a £100m profit last year on £1.5bn revenue. Its 2020 performance is expected to be ahead of that, and I think it has solid longer-term growth prospects too.

UK shares in far-flung places

Eurasia Mining is a Russian miner of platinum group metals (PGMs). Last year, this £1.1m revenue earner said it was entering a formal sale process. The share price has gone bonkers, and the company’s valuation has risen to a mind-boggling £938m. I’m avoiding the stock because I see little upside. Further, I reckon the shares could crash if no bid materialises.

Meanwhile, £251m-cap Sylvania Platinum generated $114m of revenue last year. It operates in the PGM-rich Bushveld Igneous Complex in South Africa, and pays generous dividends. The shares have risen strongly since I first tipped it in 2018, but I still see the stock as very buyable today.

Another tale of two contrasting UK shares

Online travel ticketing platform Trainline was burning cash even before the pandemic. I think we’ll see lower passenger volumes, due to more homeworking post-pandemic. I’m avoiding the stock as there’s no visibility on when, or if, it’ll generate enough free cash flow to justify a £2.1bn valuation.

By contrast. I’d be happy to buy fast-growing, cash-generative Gamma Communications. It’s profiting from the rise in unified communications as a service. I reckon its premium valuation — a market-cap of £1.5bn versus revenue of £329m last year — is justified by the size of its growth opportunity.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group and Synthomer. 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

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Could this undervalued growth stock be the next big success story in US tech?

Shares of this US technology giant have collapsed almost 50% in 2024, but is the growth stock now an incredibly…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

After soaring 35% this year, is there still value in Barclays shares? Here’s what the charts say!

Barclays has been on a tear in 2024. But where does that leave investors considering buying some shares now? This…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Nvidia stock has surged 3,450%. This UK investment trust owns loads!

Nvidia's recent amazing price surge has helped boost the value of this investment trust too as the chipmaker is its…

Read more »

Bronze bull and bear figurines
Investing Articles

After the general election what might happen to the FTSE 100?

Our writer’s been looking at the manifestos of the three main political parties to try and understand how the general…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »