I’m looking for top UK shares to buy in 2021. Here are two I’d happily add to my Stocks and Shares ISA today.
#1: A top UK software share
Global video game sales were ballooning long before the Covid-19 crisis began. But mass lockdowns have helped turbocharge the popularity of gaming as a mass media. It’s a phenomenon that’s made UK tech stock Frontier Developments (LSE: FDEV) a very exciting growth share in my opinion.
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City analysts reckon Frontier Developments — whose titles include the wildly-popular Elite Dangerous and Planet Zoo franchises — will record earnings growth of 11% and 68% in the fiscal years ending May 2021 and 2022 respectively.
The boffins at Enders Analysis recently described video games as “now a core part of the mainstream media and entertainment ecosystem.” They added too that “games share of entertainment spend and audience viewing time will maintain momentum and increase in 2021.”
There’s no guarantee that UK shares like Frontier Developments will thrive in the years ahead, of course. A negative reception to a game launch can hit developers hard in the pocket. Unexpected technical issues can also be extremely costly both in financial and reputational terms.
The launch of CD Projekt’s much-anticipated (and bug-ridden) Cyberpunk 2077 title in late 2020 illustrates this point perfectly. The Polish developer’s share price almost halved in value between early December and January 8 as gamers queued up to get refunds. CD Projekt’s past successes include the beloved Witcher franchise. But past acclaim is no guarantee of future success, as many unfortunate UK share investors know.
Besides, at current, prices Frontier Developments trades on a sky-high forward price-to-earnings (P/E) ratio of around 80 times. Elevated multiples are extremely common in the tech sphere. Investors are prepared to pay a premium for UK shares with high growth potential like this. However, a high valuation could — as we saw at CD Projekt — cause the share price to collapse if news flow begins to sour.
#2: Metal mammoth
Share pickers seeking better value for money might want to check out Sylvania Platinum (LSE: SLP) instead. This UK stock — which digs for platinum group metals (or PGMs) in South Africa — trades on a forward P/E multiple of only 4 times. The mining ace boasts a 4.5% dividend yield too.
City analysts reckon annual earnings at Sylvania will soar 173% in the financial period to June 2021. A quick look at the platinum price in recent hours illustrates just why. The metal’s just spiked to six-year peaks above $1,200 per ounce on expectations that industrial demand is about to soar. PGMs are critical components in car exhaust systems where they clean up exhaust emissions. And growing environmental legislation means that more and more of the commodity is needed.
It’s possible that Sylvania Platinum shares could fall if the economic recovery stutters. A slow rebound would hurt industrial demand for the metal, in turn damaging the price the UK share can expect to get for its product. That said, I think the long-term outlook for the company remains pretty exciting.