The FTSE 100 has fallen back over the past few days, edging towards 7,000 points. This has been due to fears that UK economic growth is slowing down, the high number of coronavirus cases and the new tax hikes. But despite these problems, I still believe that UK stocks offer good value. Here are two that I think are no-brainer buys!
An excellent half-year trading update
Vistry (LSE: VTY) has had an excellent 2021, in the context of record house prices and a strong economic recovery. Such strong demand has enabled the housebuilder to record half-year operating profits of £139.1m. This can be contrasted with a loss of £9.7m in the same period last year. But this isn’t the only positive.
In fact, the strong cash generation in the period resulted in a net cash position of £31.6m, compared to a net debt position of £357.3m. This strong liquidity has also allowed it to announce an interim dividend of 20p. For the future, it said that it would aim for the dividend to be twice covered by earnings, while excess capital would also be returned to shareholders. This seems extremely sustainable and should also lead to strong shareholder returns.
Despite this, I do have some concerns. For instance, due to the possibility that interest rates may rise, alongside the stamp duty holiday coming to an end, house prices may fall back. Further, Covid and Brexit-related workforce disruption, alongside the increasing cost of building materials, may also limit the number of houses that can be completed. This could also damage profit margins and is a factor affecting many other UK stocks right now.
But currently, rising house prices are still outpacing rising costs. And Vistry has pointed to “sustained demand”, despite the stamp duty holiday coming to an end. This means that full-year guidance has been raised to a pre-tax profit of £345m, giving it a forward price-to-earnings ratio of just under 10. This is the reason I bought Vistry shares.
This UK stock is upping shareholder returns
Aviva (LSE: AV) is the other UK share that makes up part of my portfolio and that I think is a no-brainer buy. This is due to its current strong financial performance, alongside the prospect of higher shareholder returns. In fact, in the first quarter of 2021, the insurance company reported underlying operating profits of £725m, up 17% year-on-year. This reflects extremely strong results, demonstrating that the company’s new strategy of focusing on the UK and Canada, is paying off.
But under activist shareholder pressure, Aviva has also announced plans to return £4bn to shareholders. This should be completed by the end of the first half of next year. It also includes a £750m share buyback and the possibility of a special dividend. The dividend is also expected to reach 25.36p per share by next year. This is equivalent to a yield of nearly 7%, far higher than other FTSE 100 stocks.
Although there is the tangible risk of a general economic slowdown, I feel Aviva’s positives outweigh the risks. Therefore, I think that Aviva is a no-brainer buy and I’ll buy more shares if it falls further.
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Stuart Blair owns shares in Aviva and Vistry. The Motley Fool UK has no position in any of the shares mentioned. 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.