When looking for the best UK shares to buy, one method I use is to find earnings surprises. For instance, I particularly like companies that report sales and earnings that are above management expectations. Several companies have recently reported outstanding earnings.
Particularly strong financial performance often kicks off some positive momentum for share prices. This doesn’t always work as there are many factors involved, but here are two shares I’m considering right now that I hope will pan out.
UK shares I’m watching
One company that recently delivered an excellent trading update is ITV (LSE:ITV). Its chief executive, Carolyn McCall commented: “By any standards ITV has had an outstanding nine months”. Upbeat comments from CEOs should usually be taken with a pinch of salt. However, in this case, I’d say they’re warranted.
Sales were up both on last year and 2019. As 2020 was an anomaly for many businesses due to the pandemic, it’s encouraging to see positive growth versus 2019 too.
ITV is transforming from just a traditional tv broadcaster to an “increasingly scaled digital business”. It’s delivering popular content in ways its viewers want to watch it. The outlook for next year is promising too, with a strong schedule of drama and live sports.
One thing for me to bear in mind, however, is the rise of digital only platforms like Netflix and Apple TV. There’s so much competition for content. ITV is a relatively small company that will need to keep up with the giants.
This update could kick off some positive momentum for the shares. I reckon the business is well-managed and the outlook is promising. As such, I’d consider buying these shares for my Stocks and Shares ISA.
Not just any shares..
Another British business that’s currently undergoing a transformation is Marks and Spencer (LSE:MKS). Efforts made to revitalise the business seem to be taking effect. Its half-year profit figures smashed forecasts and it even raised its outlook for the full year.
It reported profits before tax of £269.4m after market analysts were expecting a range of only £205m-£264m. It saw underlying improvements in all of its main divisions. In addition to reshaping its business, it also benefited from a bounce-back in trade from the pandemic.
Some of this rebound could continue into next year, but I’m more interested in the longer-lasting health of the underlying business. And so far, it sounds encouraging. Its popular food business is growing market share. In addition, its joint venture with Ocado is bearing fruit. Following the opening of three customer fulfilment centres, there are further plans for growth next year.
That being said, there are some factors for me to bear in mind. Industry-wide labour shortages and logistics issues are putting pressure on costs. I’d want to keep an eye on both over the coming months.
But overall, I like what I see. And although the shares are trading at two-year highs, I reckon M&S is back on track and I’d consider it for my portfolio.
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Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and 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.