Following the recent stock market volatility, I’ve been looking for UK shares to buy now for my portfolio. Here are two companies I’d buy, considering their growth potential over the next few years.
I’m primarily looking for shares to buy that could benefit from a UK economic recovery over the next few years.
The property industry is one of the sectors that’s seen the most growth over the past 18 months and may continue to register strong growth. That’s why I’d acquire LSL Property Services (LSE: LSL).
This property services group is active in all sections of the industry. It provides valuation services for mortgage providers, mortgage broking, and estate agency services. Thanks to this diversification across the industry, growth has rocketed over the past year. For the six months to the end of June, revenue increased 45%, while group operating profit increased 647% to £26.7m.
The property market’s experienced a boom over the past year, thanks in part to the government stamp duty holiday. It seems unlikely that property prices will continue to increase at a double-digit annual percentage rate. Still, even if growth returns to normal levels, I reckon LSL will continue to reap the benefits.
This is why the company features on my list of the best UK shares to buy now. It also has a strong balance sheet with £17m of net cash and is distributing profits to investors. The stock currently yields just under 1%, although I wouldn’t rule out further cash returns if profits continue to grow.
Challenges that could hold back group growth include higher interest rates, which could hurt property market transactions. A lack of qualified staff may also contribute to a growth slowdown.
Growth shares to buy
Another company that features on my list of the best UK shares to buy is Virgin Money (LSE: VMUK). I’d buy this stock because I want to have some exposure to the financial sector over the next few years.
I think this sector will benefit more than most in the UK economic recovery, as it looks as if interest rates increase next year. That could be positive for bank margins.
Virgin’s better positioned than other lenders, in my opinion, because the group has already made substantial progress with its digital strategy. It’s planning further changes over the next year. These include more branch closures, greater automation and a hybrid working model.
While these changes will incur substantial restructuring costs, they should lower overall operating costs and improve group flexibility when complete. The combination of organic growth and a streamlined operating model should act as a dual tailwind for Virgin Money.
Challenges it could face as we advance include higher costs and additional regulation, both of which could hold back the group’s growth rate.
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Rupert Hargreaves has no position in any of the shares mentioned. 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.