The FTSE 100 index of top UK stocks has gone up 18% over the past year. With that sort of strong performance, I think some top UK shares may be overvalued. But I still consider others worth buying for my portfolio today. If I was putting £5,000 to work, I would invest £1,000 in each of these five top UK stocks to buy now.
As a growth pick, I would go for Judges Scientific. I like the company because the way it is run reminds of me of the approach taken by legendary investor Warren Buffett. In short, Judges is a holding company that buys specialist scientific instrument makers then largely leaves them alone to run their businesses. Through shrewd selection of attractively priced acquisitions, the company had been able to build up an attractive portfolio of assets which is hard to replicate. Its specialist customer base helps give Judges pricing power.
Judges has grown 28% in the past year and I remain bullish about its prospects. However, one risk is delayed lab reopening following lockdowns. That could reduce revenues in the short term.
My second growth pick has performed even better than Judges over the past 12 months. The JD Sports share price is up 44% compared to a year ago. I think that reflects the company’s excellent track record of growing both revenues and profits.
JD recently upgraded its profit forecast for the coming year. I think its strong brand recognition, proven retail expertise and overseas expansion could add up to a formula for further growth many years into the future. But one risk is that revenue growth comes at the cost of profit margins, hurting overall profitability.
Top UK stocks to buy now: Diageo
One name I think offers both growth and income prospects for my portfolio is branded drinks manufacturer Diageo. The owner of iconic tipples such as Guinness and Gordon’s has raised its dividend annually for over three decades and currently yields 2%. While there is never a guarantee of a dividend, the company’s premium brands and repeat demand from customers help to make it highly cash generative.
I also see growth potential, adding to Diageo’s appeal among top UK stocks to buy now. Its portfolio of brands allows it to extend into new markets. It can even cater for teetotallers thanks to its Seedlip brand. But I think the increase in alcohol abstention on health grounds is a risk to the company’s revenues.
Legal & General
My fourth pick sees me moving to more of an income focus. Insurer and financial services provider Legal & General yields 6.4%. The company recently boosted its interim payout by 5%. It plans to hike dividends in the coming four years, although that depends on business performance.
But insurance is by its nature a business built on risk. Any slip in underwriting standards can eat into both revenues and profits.
British American Tobacco
I’d choose another income pick for my fifth choice among top UK stocks to buy now for my portfolio. British American Tobacco is the owner of well-known brands such as Lucky Strike. I like it for its yield, which sits at 8.0%.
But cigarette sales are falling in many markets and that poses a risk to profits. I also am concerned that BAT’s £40bn of net debt could constrain future dividend payouts.
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Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco, Diageo, and Judges Scientific. 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.