When the stock market is weak and the main indexes are falling, I don’t feel like buying UK shares. But dips, down-days and bear markets can throw up some decent buying opportunities.
So I’m running the calculator over two UK shares that have quality underlying businesses. My plan is to add the stocks to my diversified portfolio. I’d aim to hold them for at least five years, and probably much longer than that.
Why I think these are two UK shares to buy now
The first is premium branded soft drinks maker Britvic (LSE: BVIC). In May’s interim results report, chief executive Simon Litherland delivered a positive outlook statement for the business. The first-half performance was “robust”, he said. And through the pandemic the company gained market share in its “key” growth geographies of the UK and Brazil.
Litherland pointed to Britvic’s “particularly strong” cash management. And the directors underlined the point by reinstating the interim dividend. I see directors’ decisions regarding dividends as a primary indicator for judging investment opportunities. And, in the case of Britvic, the indicator’s positive.
Looking ahead, the company plans to “rebuild” investment behind its brands to ensure the business emerges strongly as the recovery from Covid-19 evolves. And Litherland is certain growth will materialise in the short term and continue into later time frames.
Meanwhile, with the share price near 947p, the forward-looking earnings multiple for the trading year to September 2022 is near 16. I think that valuation looks fair given the prospects of the business. But, of course, nothing’s certain. City analysts expect earnings to increase by around 25% that year. If the company misses that forecast, the valuation could contract and I may lose money. However, I’m inclined to take the risk and buy some of the shares now.
An out-of-favour situation
The second UK share I like is smoking products maker British American Tobacco (LSE: BATS). Of course, this line of business isn’t for everyone. And I can quite understand why some investors may avoid the stock on ethical grounds. On top of that, BATS receives a lot of regulatory scrutiny, which often seems to affect sentiment towards the stock in a negative manner.
And there seems little doubt the share is out of favour with investors. For example, with the share price near 2,792p, the forward-looking earnings multiple for 2022 is around eight. And the anticipated dividend yield is just above 8%. Meanwhile, City analysts have pencilled in an advance in earnings of around 7% for that year. That valuation looks cheap to me.
However, BATS has carried a lot of debt for as long as I can remember. And that’s always been justified by the strength of the firm’s incoming cash flow. Indeed, the multi-year cashflow record is a thing of beauty.
Meanwhile, in an update delivered on 8 June, chief executive Jack Bowles said: “The momentum across the business is strong, and I am excited about the future for BAT.”
I think that’s reassuring and I’d embrace the risks and buy a few of the shares for my diversified long-term portfolio.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and Britvic. 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.