Popular US shares seem to get all the headlines at the moment. But I reckon there are some great UK stocks to buy now — companies with proven success and the potential to keep growing.
In this piece I’m going to look at two UK shares from one sector I view as a long-term growth opportunity.
The first business I’m looking at today created a whole new segment of the market when it first launched. With clever marketing and a good product, Fevertree Drinks (LSE: FEVR) made us all believe that standard tonic water wasn’t good enough for expensive gin.
Despite growing competition, this 18-year-old business continues to dominate the premium mixers segment. Its share of the UK retail market for mixers is now around 40%. The company is also expanding rapidly in the US and elsewhere.
The best UK stock to buy now?
Fevertree’s share price has doubled from the lows seen last year. I don’t think the shares are cheap, but I think that its rare combination of strong growth and high profit margins may justify the share price.
Annual sales have risen by an average of 34% per year since 2015. Although UK sales fell last year due to pub and restaurant closures, US sales rose by 23% to £58.5m.
Growth has already picked up pace in 2021. During the first six months of this year, group sales rose by 34%, on a like-for-like basis.
I reckon Fevertree has further to go
The main risk I can see is that Fevertree’s expansion will slow unexpectedly. With the shares trading on around 50 times forecast earnings, a lot of growth is already priced into this UK stock. Slowing sales or pressure on pricing could see the shares struggle.
In recent months, higher transport costs have also hit the firm’s profits. This has caused management to cut profit guidance for the year.
These risks are real, but I believe the Fever-Tree brand has the potential to become a much bigger global name. If I’m right, then any short-term problems like transport costs are unlikely to matter much.
For this reason, I’d be happy to buy some of the shares today, as a long-term holding.
More popular than Coke!
In most countries around the world, Coca-Cola is the most popular soft drink. But not in Scotland. The top-selling fizzy drink north of the border is Irn Bru, which is made by Cumbernauld-based AG Barr (LSE: BAG).
Barr’s has been in business for more than 100 years and today makes a whole range of drinks. Other brands in the group’s portfolio include Snapple, Tizer, and Strathmore. AG Barr also produces the Funkin brand of pre-mixed cocktails, giving it some exposure to the alcohol market.
The obvious risk I can see with Irn Bru is that some of its brands are a little dated. It’s not clear to me how much growth potential they have. However, the company has managed to trade successfully for more than a century and — until last year — hadn’t cut its dividend for 30 years.
Trading so far this year has been better than expected. Management now says that profits are likely to be ahead of pre-Covid levels. I wouldn’t bet against Barr’s long-term growth. I see this business as a good UK stock I could buy for the next decade.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended AG Barr and Fevertree Drinks. 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.