As the economy continues to recover from the pandemic, I’ve been searching for UK shares to buy that may benefit from the continued reopening.
I’m particularly interested in the retail sector. Consumer retail spending has accelerated over the past few months. And it looks as if this trend will continue as consumers splash out with their lockdown savings.
As such, here are three UK shares in the retail sector I’d buy for the recovery.
Back to business
Marks & Spencer (LSE: MKS) is one of those companies that always seems to be on the verge of turnaround. This is one of the reasons why I’ve avoided the stock in the past. However, it now appears as if the group’s hard work is beginning to pay off.
According to its latest trading update for the 19 weeks to 14 August, overall group sales were 4.4% higher than they were for the same period in 2019.
These figures suggest management’s current turnaround plan is yielding results. It’s also been able to hike profit expectations for the year with sales also outperforming targets.
Despite this positive update, management remains cautious about the company’s outlook. And so am I. With Covid-19 still wreaking havoc around the world, there’s no telling at this point if there’ll be more pandemic-related restrictions on the company’s trading. This could hamper its recovery.
Still, even after taking this risk into account, I’s buy shares in Marks & Spencer today.
UK shares to buy now
However, Next generates more than 50% of its income online, and Ocado generates 100%. Therefore, these firms should be able to navigate any more lockdowns.
In fact, in previous ones, the two firms have reported a surge in business on their platforms. With a lack of options, consumers had to buy from online retailers.
This is why I believe these are some of the best UK shares to buy now for the recovery. Even though they’ve lost the lockdown advantage they once had, both Next and Ocado should benefit from rising consumer spending overall.
Further, the two companies have been investing heavily in boosting capacity and efficiency (as has Marks & Spencer, but more in a bid to play catch-up).
Next is expanding its online logistics operation, improving the fulfillment process for itself and peers that use its platform.
Meanwhile, Ocado is investing in expanding its capacity with the goal of taking a greater share of the UK retail market. It saw an influx of customers during the pandemic, and it thinks many of these will continue shopping with the business.
Having said all of the above, these two companies do have their challenges. The e-commerce sector is viciously competitive, and Next needs to keep spending, or it could lose market share.
The same goes for Ocado. Its heavy growth spending is consuming all of its slim profit margins. Both firms are moving forward today, but if they expand too fast, they could end up wasting funds on unnecessary growth.
Even after considering these challenges, I still reckon these are some of the best UK shares to buy for the recovery.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Next. The Motley Fool UK has recommended Ocado Group. 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.