2 of the best UK shares to buy for a reopening economy

Consumer confidence is bouncing back. Could the best UK shares be in the retail, hospitality, and leisure sectors? Harshil Patel investigates.

| More on:

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 UK is set to grow at its fastest rate on record this year. Encouragingly, the EY Item Club has upgraded its 2021 UK growth forecast from 5% to 6.8%. After the UK economy suffered a record fall in output last year, 2021 could be due a “bounce-back”. So I’m looking for the best UK shares to invest in right now.

Consumer confidence increased at the fastest rate in a decade in the first quarter of 2021. According to a survey of 3,000 adults, “going to a shop” was the top desired activity after lockdown restrictions end.

Shopping for the best UK shares

Fittingly, one of the best UK shares I’d buy right now is Next (LSE:NXT). This FTSE 100-listed clothing, beauty and homewares retailer runs a remarkable operation.

As restrictions end and more people venture out and about, demand for clothing should increase. Next is well-placed to benefit from this shift, in my opinion.

The crisis created several opportunities for Next, and it managed to pick up some strong brands as competitors struggled to stay afloat. It took over the spaces that had housed several beauty halls in former Debenhams stores to launch its new premium beauty chain. And it acquired a 25% stake in premium fashion brand Reiss. As the country gets back on its feet, Next could thrive in an environment with fewer competitors.

For instance, Next offers expectations of strong earnings growth, a double-digit return on capital, and an undemanding price-to-earnings ratio of 18x.

Bear in mind though, consumer sentiment could quickly reverse depending on the path of the virus. Any additional wave of infections or variants could prompt a return to restrictions. It’s a risk that should be carefully considered when investing in consumer-based stocks.

Aiming to strike

Households saved a record £238bn last year, according to figures from the Office for National Statistics. With consumer confidence returning, the UK is primed for a spending spree, in my opinion.

In addition to shopping, other areas that could see strong demand include hospitality and leisure.

Within these sectors, Hollywood Bowl (LSE: BOWL) could benefit from strong pent-up demand. Last year, trading was good when the business was allowed to open. Encouragingly, it experienced a better than expected performance during the summer, despite capacity and trading restrictions.  

The leisure operator launched new initiatives including the successful debut of a mini-golf concept. And it continues to expand sites and invest in refurbishing.

Some of the best UK shares can bounce back from a crisis. Some of the hardest hit sectors in the pandemic were leisure and hospitality. As confidence returns, they could recover with strength.

That said, businesses based indoors are at greater risk from further restrictions. I’m cautiously optimistic about UK leisure businesses, but with a close eye on virus variants and vaccine progress. Also, further dilution of shares can’t be ruled out, in my opinion. Much could depend on trading progress over the coming months.

Weighing everything up, I’d happily allocate a small portion of my portfolio to this reopening stock.

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.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Hollywood Bowl. 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

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Would an investor have made money investing £2k in NIO stock 5 years ago?

Our writer looks at how NIO stock has performed over recent years and weighs the bull and bear cases as…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 steps to start buying shares with £5 a day

In a handful of steps, our writer explains how someone new to the stock market could start buying shares for…

Read more »