I don’t care about the worsening economic outlook for 2021. This is why I’m thinking of adding these UK shares to my Stocks and Shares ISA right now.
#1: A great UK defence share
I don’t believe that weapons spending by Western governments will fall following the Covid-19 crisis. New geopolitical fears surrounding Russia and China, and the ongoing fight against terrorism, mean that US and UK defence budgets should keep growing. But of course none of us can be 100% certain of this. The longer the public health emergency drags on, the more pressure there will be on governments to rein-in spending across the board.
As a long-term share investor, though, I’m not worried even if some defence budgets come under temporary pressure. This is because I buy UK shares according to how they’ll be performing over a period of years, usually a minimum of a decade. And the outlook for arms spending through to 2030 seems robust.
A recent report by defence intelligence body Janes underlines this. It actually suggests that total global defence spending will speed up in the years ahead. Total budgets of $1.75trn in 2010 rose to $1.93trn in 2020, it says, up $18bn. Janes estimates that the total will soar by an even-greater $30bn between now and 2030, to $2.23trn.
This all bodes well for Ultra Electronics, a UK share that provides sonar and sensor tech for boats and subs. It supplies tactical intelligence services and products along with a broad array of communications gear too. Ultra sources more than 80% of revenues from the UK and US, though it also sells into Europe and other territories.
A forward price-to-earnings (P/E) ratio at Ultra Electronics may look a fraction toppy on paper. But in practice I think the defence giant’s good long-term outlook merits this slight premium.
#2: A top FTSE 100 stock
I believe that WPP (LSE: WPP) of the FTSE 100 has a very bright future as well. This is despite the possibility that the recent improvement in advertising budgets is in danger of fizzing out. With Covid-19 lockdowns intensifying and vaccine rollout problems occurring, the outlook for the global economy is a little darker than it was at the start of the year. So there is a chance that WPP’s profits could disappoint in 2021 as the public health emergency drags on, and this could be detrimental for the share price in the near-term.
When the new bull market comes though, I believe advertising budgets should roar higher. As a long-term investor I can afford to be patient and not stress if the economic recovery takes longer than expected. And I have faith that this UK share has the clout to make the most of the opportunities that will come around. WPP operates out of more than 100 countries and has around 350 of the Fortune Global 500 list of the world’s biggest companies on its client list
Today WPP trades on a cheap forward P/E ratio of 12 times. This leaves a decent margin of error should near-term profits estimates indeed disappoint.
