Would I buy or sell these top-performing UK shares?

Paul Summers takes a closer look at three of the best-performing UK shares from 2020. Would he take some profit or buy more?

| 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.

Tragic though the global pandemic is, it’s also been a boon to many companies. The question their shareholders now face is whether to continue buying, retain what they have or start selling. I’m a long-term investor and don’t sell often. So what would I do with three UK shares that thrived in 2020? For a start, I’d only buy one!

Halfords

Bike and car parts retailer Halfords (LSE: HFD) was a huge beneficiary of the push to exercise during lockdowns. With movement restricted and most shops and all leisure facilities closed, what could be better than peddling the misery away? Sales duly rocketed, followed by its share price.

The company, which also operates auto repair centres, releases its latest set of full-year numbers next month. While the inevitably good numbers should push the shares higher, a cautious outlook could do the opposite. After all, trading may be about to get tougher as the UK prepares to fully unlock.

Halfords faces two problems: those with bikes won’t be in a hurry to replace them and people now want to spend their money on things they’ve been itching to do. On top of this, it still presents as a pretty unexceptional company without last year’s unexpected tailwind. Margins are low. Returns on capital — what it makes on the money it invests in itself — are also very average.

I wouldn’t buy and might even sell some if I needed cash to invest in what I see as a better growth pick.

AO World

Another company that’s done well out of the pandemic has been online domestic appliance seller AO World (LSE: AO). In fact, it was one of the best-performing UK shares last year. The share price rocketed from 57p a pop in April 2020 to 411p a share by 31 December.

Since then, however, we’ve seen sentiment turn. I don’t think this is surprising. CEO John Roberts is confident that AO will “continue to be a double-digit growth business in the year ahead,” but the market seems to think otherwise. On 29 times earnings, the stock also looks pretty expensive for a company with no discernible moat or market-leading position. Will customers remain loyal? I’m sceptical.  

Prior to Covid-19, AO was a loss-making, ‘jam tomorrow’ stock. Without evidence that it can continue to thrive in normal market conditions, I’d be taking some profit here if I hadn’t already started doing so.

Gear4music

Multiple UK lockdowns have also been kind to online musical instrument seller Gear4music (LSE: G4M). Over the last year, the share price has leapt 225%! The question now is whether this momentum can be sustained after the company reports to the market on 22 June.

Like Halfords, Gear4music faces some tough comparisons going forward. While playing music can be a lifelong pursuit, one has to wonder whether people have all the guitars, drums and trumpets they need for now. G4M’s small-cap status also means it’s more susceptible to big share price moves compared to the average FTSE 100 juggernaut. If investors get nervous, the party could be (temporarily) over.

But the long-term growth prospects are surely excellent thanks to the gradual reduction of independent musical instrument retailers on the high street. For this reason, I’d be happy to hold this UK share. If the shares fall back next month, I’d back up the truck and buy too.

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.

Paul Summers 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

Investing Articles

7%+ dividend yields! Here are 2 of the best UK shares to consider buying in June

This Fool has been searching for UK shares with the best dividend yields. Here are two he thinks investors should…

Read more »

Investing Articles

5 FTSE 100 shares to consider buying for passive income right now

The FTSE 100 is having its best start to the year for ages, and that's pushing the top dividend yields…

Read more »

Investing Articles

One overlooked cheap share to tap into the year’s hottest theme?

This Fool describes the key things to think about when investing in copper stocks and analyses one cheap share to…

Read more »

Investing Articles

A cheap FTSE 100 stock that’s ready for a dividend hike in 2024

This banking giant is one of the FTSE 100's greatest dividend stocks. And at current prices, our writer Royston Wild…

Read more »

Growth Shares

Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

With the share price near 262p, is the FTSE 100’s Kingfisher a decent investment now for dividends and business recovery?

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£500 buys me 493 shares in this 7.4% yielding dividend stock!

The renewable energy sector remains out of favour. As a result, there are some high-yielders around, including this dividend stock.

Read more »

Road trip. Father and son travelling together by car
Investing Articles

If I’d put £10k into Tesla stock 2 years ago, here’s what I’d have now

Tesla stock has fallen in the past few years. But the valuation looks temptingly low now, as we approach a…

Read more »