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.

| 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.

Risk reward ratio / risk management concept

Image source: Getty Images

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.

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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Growth Shares

3 things I learnt from Warren Buffett’s annual shareholder letter

Jon Smith reads the letter Warren Buffett just put out and provides his key thoughts and summary of the investing…

Read more »

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 »