The deadline to buy stocks via my Stocks and Shares ISA for my 2020/21 allocation is coming up. Fortunately, I’ve still got plenty of the £20,000 allocation to take advantage of over the next couple of months. Therefore I’m on the lookout for UK stocks to buy now. Any stock I add into the ISA will allow me to benefit from relief from capital gains tax. This means I can sell my stocks for a profit, and keep all of that profit within my ISA, untaxed.
Stocks within the finance sector
The first sector I think offers me some good UK stock to buy now is finance. Shares like Barclays, NatWest and Legal & General look appealing to me. The banks have survived the large impairments needed due to the potential for bad loans last year. Several have also mentioned that dividend payments could be resumed in 2021. Legal & General (as a non-bank) has maintained the dividend payout during Covid-19. It’s got an attractive dividend yield of 6.76% at the moment.
Companies in this sector do carry risks. If I bought these UK stocks now, I’d need to be conscious of the impact negative interest rates would have. It would likely reduce the banks’ margins on lending, reducing profitability. If we saw another market crash like last March, the funds operated by investment managers such as Legal & General could also see large outflows. This would reduce the fees generated from the assets under management.
Are supermarkets super stocks?
UK stocks within the retail space look attractive to me to buy now too. These include J Sainsbury, Tesco and WM Morrison. These three supermarket firms controlled 53% of the total market share within the sector as of 2020. I think they’re worthy buys right now as their performances should be good regardless of the UK economy this year. Even with a recession and Covid-19, J Sainsbury saw total retail sales growing 7.1% year-on-year through to the middle of September. The nature of the merchandise sold allows for consistent revenue during bad and good times.
The risks to buying these stocks now is stiffer competition. For example, Ocado grew retail revenue by 35% last year. Online grocers like Ocado offer an alternative for consumers from having to physically go to the supermarket. Another risk of buying is the low profit margins in the industry. The average profit margin of goods is between 1% and 3%. This doesn’t leave much room for error, particularly if indirect costs rise or volumes sold fall.
UK stocks: buy now or later?
With the uncertainty still surrounding around the UK economy at the moment, I could hold off from buying right now. We could see another dip in the market like we saw last March. However, I can’t predict the future. I certainly can’t perfectly time the market. Given that I fundamentally believe the potential rewards outweigh the risks for the above, I’d prefer to buy these UK stocks now.
