January certainly has not been a dull month so far in the stock market. I think that could provide me with some buying opportunities. If I had £1,000 to invest in UK shares today, here is what I would do.
Clarify my objectives
First, I would think about what I want to achieve with my investment. Recent stock market moves mean that some growth shares are cheaper than they have been for a while. That does not necessarily mean that they are cheap in objective terms, however. If the market nervousness about tech valuations worsens, some growth shares that have already seen steep falls could still tumble further.
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There has also been a swing into more defensive shares. So some popular dividend shares now offer lower yields than they did a couple of months ago. I still find some of the yields on offer attractive for my portfolio. So I would split the £1,000 evenly across two growth shares and two income picks. That diversification would reduce my risk if any one company performed poorly.
Two UK shares for growth
For growth, my first pick would be JD Sports. The retailer’s share price has dropped over 20% over the past couple of months. But its business outlook remains strong. Indeed this month the company said that it expects the current year’s results to top market expectations. One caveat, though, was that revenues and profits could be hit if the company faced any more trading restrictions on its shops in the UK and North America.
Second, I would buy digital ad holding group S4 Capital. Its shares have tumbled 46% since September. But I think the business performance in that time has continued strongly. Indeed, this month S4 said that its full-year outlook remained in line with market expectations, which were already high. With its large tech exposure, the company could struggle to maintain its historically fast revenue growth. Growing headcount could also add costs into the business, hurting profitability. But the company says it is working to keep its profit margins attractive. I see the share price fall as a buying opportunity for my portfolio.
Two UK shares for income
After upwards price moves in the past couple of months, British American Tobacco now yields 6.8%. That is lower than it had been but still an attractive level that could boost my dividend income. I think the price recovery partly reflects the market recognising some of the strengths in BAT’s business that had become somewhat overlooked, such as the rapid growth in its next generation products like vaping. That could help to offset the risk of falling cigarette revenues as smoking becomes less common in many markets.
Another share I would buy is natural gas and oil company Diversified Energy. The owner of around 67,000 wells in the US can generate attractive cash flows especially at a time when energy prices are strong — like now. That funds a generous dividend, paid quarterly. Right now the Diversified Energy dividend yield is 11.1%. Energy prices falling back could hurt both revenues and profits. But with a double-digit yield, I would happily buy the shares for my portfolio.