ISA investing: 3 UK shares I’d buy today

Rupert Hargreaves outlines his ISA investing strategy for UK shares to achieve profits from both income and capital growth.

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I think ISA investing is a great strategy to grow and build wealth. The tax-efficient nature of Stocks and Shares ISAs means they can be great tools for investors to reduce tax liabilities and maximise profits with UK shares. 

I try to make the most of my ISA allowance every year. I focus on growth companies and income stocks to try and maximise the benefits of these wrappers. 

UK shares to buy

A couple of companies on the market stand out to me right now as being tremendous ISA investments. The first stock is Alfa Financial Software (LSE: ALFA).

As its name suggests, this enterprise designs and develops software for the asset finance industry. This is an incredibly defensive market because organisations buying the company’s software are unlikely to change their providers regularly. 

The group is currently chasing some significant new contracts, with 10 prospects in its late-stage pipeline. Even without these new prospects, the company expects to report revenue growth of 5% for the year. 

Despite the sticky nature of its product, Alfa’s growth shouldn’t be taken for granted. If the company underspends on research and development, or suffers a significant cyber attack, customers may move elsewhere. 

This risk aside, I’d buy Alfa for its growth potential as an ISA investing champion. 

Technological change 

Another company I’d acquire is RM (LSE: RM). This education software business recently reported a 21% increase in revenues for the six months ended 31 May. Statutory profit before tax increased 213% in the period. This allowed the group to reinstate its interim dividend at 1.7p. 

RM’s education business has benefited from the ongoing digitisation of school infrastructure. This has accelerated during the pandemic, and I think it will continue. Technology adoption has accelerated in many sectors over the past year. I believe it’s improbable the world will ever go back to the methods used before the pandemic. 

Based on this view, I think RM’s profits and sales will continue to grow, and the company may be able to increase its dividend further in the years ahead. Those are the reasons why I’d buy the stock for my ISA today. 

Key challenges the group will face are competition and higher costs. The software sector is incredibly competitive, and if the group doesn’t keep up with its competitors, it may lose market share. 

ISA investing for income 

The final company I’d buy for my basket of UK shares in a Stocks and Shares ISA is Ferrexpo (LSE: FXPO). This iron ore miner is an income champion. Unfortunately, it may not be suitable for many investors for environmental and governance reasons. Iron ore mining is an environmentally damaging process, and the enterprise is majority-owned by just a few shareholders. 

These risks aside, it’s been able to capitalise on rising iron ore prices over the past 12 months. According to the company’s 2020 financial results, earnings before interest, tax, depreciation and amortisation increased 46%.

Strong earnings allowed the group to eliminate its debt and announce a special dividend for 2020. Total dividends for the year amounted to 52p, giving a dividend yield of 11% on the current share price. 

This income potential is why I’d buy the stock for my ISA today. 

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.

Rupert Hargreaves 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.

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