Imagine that I have £1,000 in hand and decide to use it to buy UK shares. What would be the UK shares to buy now for my investment goals?
I think it’s important to diversify my risk. Even with £1,000, I’d consider investing in at least two companies to make sure my eggs aren’t all in one basket.
Here are two approaches I could take to making such an investment today.
Blue chip stalwarts
High up my list of UK shares to buy now would be blue chip names. I’d focus on household names that I think are well-run, have solid business models, and look well positioned for the future even amid technological change.
One such group of shares would be grocery retailers. Their product will remain in demand and they have adapted to technological challenges. I think Tesco, Morrisons, and Sainsbury all meet my criteria. One risk is that competition could erode margins further. But all three are growing their digital offering while continuing to have a strong place on the high street.
Similarly, I fancy some consumer goods companies as I think they have good business moats. Diageo, Unilever, and Reckitt Benckiser all produce well-known branded products with a strong following. They have a long history of dividend payouts and I expect the companies to continue to perform well in the future. Indeed, the pandemic could have a long tail of increased demand for cleaning and hygiene products. Past dividends don’t necessarily mean there will be future dividends. But all three companies have strong cash flows and pricing power. Those are the sorts of characteristics Warren Buffett looks for in shares.
UK shares to buy now for recovery
Alternatively I could take a more value-based approach. A lot of shares still look cheap to me compared to their pre-virus prices. These could be the UK shares to buy now that I add to my shopping list today.
An example is the banking sector. Many banking shares have already recovered strongly. The reintroduction of dividends and lower than expected default rates have helped boost confidence in the sector’s prospects.
Natwest is heavily exposed to the UK banking market. That concentration poses some risks, for example, if there is an economic downturn. But I also think it presents a business opportunity. The UK retail banking market has been fairly resilient lately.
The bank share price has risen over 60% in the past year. But that is still below its pre-pandemic price. The bank’s plan to buy back shares from the government and cancel some should help drive the price up, in my view.
Moving to action
Before investing £1,000, I’d make sure I was clear on my objectives. I’d also try to diversify my risk, for example by investing in more than one company.
Having done that, I would consider acting on my list of UK shares to buy now. While many shares have moved up agreeably in recent months, some like Natwest still look undervalued to me. A post-reopening boom could drive investor sentiment higher.
So, rather than waiting to see how my picks perform in coming weeks, I’d opt to make my move now.
