On Wednesday, Chancellor of the Exchequer Rishi Sunak will deliver his Budget and Spending Review. Some UK shares will directly benefit, others (of course) won’t. I expect these three stocks to be winners from the Budget and longer term as I see them as great companies.
Levelling Up
Anybody who watches the news knows that levelling up is critical to this government’s vision. Morgan Sindall (LSE: MGNS) is a UK share that ought to benefit. It’s involved in construction, infrastructure and housing, so is well placed to help deliver the levelling up agenda.
For a construction company, Morgan Sindall has good returns on capital employed, indicating that it’s a high-quality company and makes me more confident it’s a good investment. Revenue has also been growing consistently year-on-year, which is an encouraging sign of its resilience and good management.
Margins are understandably low because there’s little pricing power when it comes to infrastructure. Any mispricing of contracts can lead to the company losing money, so it’s a tricky industry.
But on a P/E of 11.5, the shares aren’t expensive and the business seems robust. There could well be a boost from the Budget in the short term and I may therefore buy this stock.
More homes
A major priority for the government is housing. This is why Persimmon (LSE: PSN) could receive a boost this week and do well longer term.
The housebuilder has a lot of cash on the balance sheet, which will enable it to pay a growing dividend and invest in its land bank. It also would be a cushion against any unexpected downturn in the market. Sector-leading margins should also limit any share price fall, at least relative to other housebuilders, in a market downturn.
To me, the big attraction with these shares (beyond government support for housebuilding) is the dividend yield. Persimmon shares currently yield an eye-watering 9%. Usually so high a yield would be a red flag. But I think this is an exception because Persimmon has so much cash and actually cut the dividend during the pandemic.
It’s worth noting though that housebuilding is cyclical. Persimmon has burnt through a few CEOs in recent years and has been known for poor workmanship. But I feel the benefits outweigh the risks.
It has been a great income share for quite a while and I’m tempted to add some shares to my investment portfolio.
COP26
While there are some doubts about how successful COP26 will be, there’s no doubt climate change is an important issue. For the UK and other countries, like Japan, hydrogen increasingly is being seen as part of the answer. That should benefit ITM Power (LSE: ITM).
At its simplest, ITM Power is an energy storage and clean fuel group. Its fortunes though will be very tied to hydrogen and the adoption of that technology.
Now could be a good time to invest as the group has just raised £250m and the share price has been falling through much of this year. The shares are now better value than they were.
It’s undoubtedly still quite speculative given that it’s loss-making and hydrogen still isn’t widely used in energy. If I buy the shares, they’ll be only a small part of my overall portfolio as I feel they could be volatile in the short term.
