UK shares to buy for May: how I’d invest £2,000 today

After a strong market rally, which UK shares still deserve a ‘buy’ rating? Roland Head looks at two stocks he thinks are poised for growth.

| 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.

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 market rally we’ve seen since November has left some UK shares trading at share prices last seen before the pandemic. I’m finding it harder to find cheap shares to buy than I was six months ago.

However, I reckon there are still some good opportunities out there. Today, I’m going to look at two companies that have caught my eye recently.

From oil to renewables

I think it’s fair to say renewable energy is a sector that’s going grow for the foreseeable future. But the reality is that much of our energy today still comes from oil and gas.

I reckon that one good way to play the energy transition is to invest in companies whose services are needed by oil producers and renewable operators, especially offshore. My favourite stock in this sector is  Wood Group (LSE: WG), which has been in business for more than 100 years.

Wood Group has historically focused on the oil sector, but the company has diversified in recent years and now works in renewables and the wider infrastructure sector. I reckon that should support longer-term growth.

In the meantime, the company is still an important service provider to the oil sector — including the growing area of North Sea decommissioning.

What could go wrong? Market conditions are pretty tough for oil services firms these days. Wood’s profit margins have never returned to the peak levels seen from 2013-2015, when oil traded at over $100 per barrel.

The company is also still battling to repay the debt it built up when it acquired AMEC Foster Wheeler in 2017. Borrowings are coming down, but they’re still a little high for my liking.

Despite these concerns, I think Wood Group looks decent value at the moment, on around 13 times 2022 forecast earnings. I’d be happy to buy the shares at this level, as I expect to see steady growth over the next few years.

This UK share could keep growing

One company that’s impressed me over many years is FTSE 250 firm Spirent Communications (LSE: SPT). This company is one of the leading players in the network-testing and analytics sector. Its main business is providing the services and equipment needed by network operators to test services such as 5G and Wi-Fi.

The pandemic caused some extra challenges last year. Despite these, Spirent’s adjusted pre-tax profit rose by 10% to $104m last year, while its operating margin rose to 18%.

City analysts are forecasting a 17% increase in pre-tax profit for 2021. Is this the perfect business? Not quite.

Spirent must continually invest in research and development to ensure that it has the best testing solutions for new technology. The company is spending about 20% of its revenue on R&D each year at the moment and must continue to stay ahead of new trends. Falling behind could result in a multi-year slump in new sales.

This UK share isn’t cheap either. Spirent trades on around 23 times forecast earnings for 2021, with a dividend yield of just 1.6%. If steady growth continues, then I think this valuation is probably fair. But if results disappoint, then I think the stock could fall sharply.

Despite these risks, I’d buy Spirent Communications today. I reckon it’s a good quality business in a growing market. In my experience, that combination often makes for a good investment.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

View over Old Man Of Storr, Isle Of Skye, Scotland
Investing Articles

2 high-yield FTSE 250 shares I’d buy now – and 1 that I wouldn’t

This writer considers a trio of FTSE 250 shares with attractive dividend yields and explains which two he would buy…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

In a cyclical downturn, is there a buying opportunity in Croda shares?

With a positive sales outlook for 2024, is there a buying opportunity in Croda shares ahead of a potential recovery…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£20,000 in savings? Here’s how I’d aim for £14,710 a year in passive income

With spare savings, this Fool would start generating passive income for a more comfortable retirement. Here he details how he'd…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £581 a month of passive income

Relatively small investments in high-yielding stocks can grow through the power of dividend compounding into significant passive income.

Read more »

Photo of a man going through financial problems
Investing Articles

These are the FTSE’s biggest dogs over the last year!

The FTSE 100 has fallen far behind other major market indices over the past 12 months. However, these three sliding…

Read more »

Investing Articles

My top 3 stock market lessons from the Nvidia volcano eruption

Can we learn anything from the explosive rise in Nvidia's share price? Here are three Foolish reflections from this stock…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Is boohoo the best near-penny stock to buy today?

This Fool asks why the boohoo share price has collapsed and whether now might be a good time to invest…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »