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Best UK stocks to buy in an ISA

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UK stocks have performed very well in the past few months. The successful vaccination drive and reopening of sectors of the economy have given a boost to stocks. Here are three UK stocks that I would consider buying for my ISA.

Best UK stocks to buy #1

Tesco (LSE: TSCO) is the leading grocery retailer in the UK with about 27% market share. The quick adaptation to the changing needs of consumers helped the company beat the competition. Online sales are showing strong growth, which is encouraging.

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I like the stock very much due to its strong free cash flows. For the year 2020, it generated £1.2bn of retail free cash flow. Due to a one-off pension payment of £2.5bn, it reduced its pension deficit, which will save the company £260m per year of future cash flows. This should further help to maintain a strong balance sheet. 

On the other hand, like any stock, it has some risks. The company is facing competition from discount retailers like Lidl and Aldi. It also competes for market share with large grocery retailers like Sainsbury’s, Asda, and Morrisons. This will put pressure on the company’s future profits. 

Best UK stocks to buy #2

Next on my list is insurance giant Aviva (LSE: AV). The management’s restructuring efforts have improved the company’s balance sheet. Its shares are currently trading at a price-to-earnings (P/E) ratio of 5.9. This is lower than its historical average of 16.5. I like this stock for its low P/E ratio and good balance sheet, and also for the dividend yield of 5.2% which is like icing on the cake. Finally, its price-to-book ratio of 0.82 is lower than its five-year average of 0.95.

The insurance sector is very competitive. The company has to be watchful of its market share. Also, the shares rose around 65% in the past year. Some current investors may choose to book a profit which could lead to a fall in the share price. 

Best UK stocks to buy #3

Plus500 (LSE: PLUS) is another great stock that I am interested in adding to my ISA. It is currently trading at a P/E ratio of 4.30. I believe that the stock is a value buy at these levels. It also has an excellent dividend yield of 7.75%, which is another reason I love the stock. The company’s revenue in the year 2020 grew by 146% to $872.5m. Its net profit margin was also good at 57%. Over 82m customers traded in the year 2020, compared to 35m in the previous year. 

One of the reasons for the strong revenue growth in 2020 was increased trading during the lockdown. With most countries removing their lockdowns, trading volumes might come down, which is a risk to the company’s profits. The company provides the trading platform for contract-for-differences products. These products are considered risky and heavily regulated. If any product were to be banned, this could increase the share’s volatility. 

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons and Tesco. 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.

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