As we continue into what should be an interesting back half of 2021, I’m looking for stocks that can outperform in what could be a relatively choppy period in the markets.
As a long-term investor, I like the defensiveness and steadiness these three top UK stocks provide. Let’s dive into why these are some of the best stocks on the FTSE I’m considering right now for my portfolio.
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Top UK shares: Anglo American
Pre-eminent miner Anglo American (LSE:AAL) is one of the UK shares I’ve been considering for some time.
Indeed, as far as defensiveness goes, Anglo American is a company worth watching. Given the rise in commodity prices we’ve seen take hold of late, this thesis is stronger than ever. Should commodity prices continue to remain stable or climb higher, Anglo American stands to be a key beneficiary. Of course, risks to the contrary are present with this economically sensitive name.
Unsurprisingly, the company’s profitability has been impressive of late. As fellow Fool contributor Manika Premsingh pointed out in a recent piece, Anglo American’s 1,000% profit increase year-over-year is worth considering. Accordingly, I’m going to be watching this stock closely, and will consider adding on share price weakness.
An absolute behemoth in the consumer goods space, Unilever (LSE:ULVR) has perhaps one of the most stable share prices of any such company in the world in recent years. This is reason enough for me to put this near the top of my list of defensive UK shares.
Concerns about inflation and rising costs throughout the production chain have dampened my outlook on Unilever to some extent. In many ways, these risks make Unilever a hard stock to justify from a growth perspective in my portfolio. However, it’s also my view that these risks may be largely baked into Unilever’s stock price right now.
The company’s financials have come in strong of late, as Unilever pushes into e-commerce. Additionally, the company’s valuation at around 20-times earnings is enticing to me. This makes for an intriguing defensive value argument for Unilever’s potential inclusion in my portfolio.
One stock I’ve been taking a hard look at recently is Aviva (LSA:AV). This insurance juggernaut happens to be one of the best UK shares in this space, in my view. I think this company’s fundamentals and orientation toward the domestic UK market make it a top play in the global insurance space as well. Aviva is the UK’s largest insurer, with 23% of the market share in the UK.
I’m looking at the UK market as a key beneficiary of the longer-term economic reopening coming out of this pandemic. Accordingly, I like Avivia’s positioning as the leading UK insurance play in this market.
However, risks persist in the insurance space tied to interest rates. Lower for longer interest rates reduce the amount insurers are able to earn on fixed income investments, from investing their float (premiums less claims). Accordingly, if government bond yields remain persistently low, as they have since the pandemic began, investors in insurance companies like Aviva could see longer-term growth stunted to some degree. On the flip side, should rates rise, this could provide a longer-term boost to earnings as well.
Accordingly, I like the risk-reward with this stock. This one of the UK shares I’m considering for my portfolio.