With stock markets showing signs of nervousness, some share prices are jumping around. I have been looking at quality companies in the market to try and find some shares to buy now for my portfolio that I can hold for years.
Here are a handful of candidates I would consider for my portfolio.
Unilever
The consumer goods company Unilever (LSE: ULVR) has not had an easy couple of years. Like its industry peers, the company has been struggling to deal with high inflation on things like ingredients and packaging. Although its premium brand portfolio gives the company pricing power, it may not be able to pass all of these costs onto customers without losing some sales.
But zooming out to take a longer term view, I see reasons to like Unilever as a blue chip holding for my portfolio. The company has a lot of the attributes Warren Buffett looks for in a business. It operates in areas where demand is robust. Its business model has already proven itself to be profitable. The brands it owns give it a form of competitive advantage, or as Buffett would call it, a moat. Indeed, Buffett finds the Unilever business so compelling that he tried to buy the whole company a few years ago.
Since then, the Unilever share price has drifted south. I can now buy shares for my portfolio at a cheaper price than Buffett offered – and he is not generally known for overpaying. The falling share price has also pushed up the dividend yield. It now stands at 4%. For a blue chip FTSE 100 company like Unilever, I regard that as attractive. I would happily buy more now to hold in my portfolio.
Victrex
One share I have bought for my portfolio this month after eyeing it for a long time is polymer maker Victrex (LSE: VCT).
So, why did I finally make the move? Basically, a fall in the Victrex share price meant that I liked the value it offered my portfolio for the long term. The shares have fallen 24% over the past year.
Such a share price fall rarely comes out of thin air, however. Investors are concerned that the sharp increase in energy costs and other input prices could harm Victrex’s profit margins. Its almost total reliance on export markets is also a risk, given ongoing logistics challenges both in Europe and further afield.
But Victrex is another company I reckon has a Buffett-style moat. It is regarded as one of the leading suppliers for its type of polymers. Indeed, as some of its products are proprietary, Victrex is the only company that can make and sell them. That gives it pricing power. The sorts of applications they are used for makes them mission-critical, so customers are willing to pay for quality.
While I expect inflationary pressures to ease over time, the attractive underlying economics of the business will hopefully remain the same. That is why I have tucked them into my portfolio.
Legal & General
The insurer and financial services group Legal & General (LSE: LGEN) has also seen its shares lose steam lately. With a fall of 8% over the past year, the slide has been less dramatic than at Victrex. But one effect has been the same – pushing up the dividend yield. At Legal & General, that now stands at 7%.
On top of that, the company has set out plans to keep raising its dividend in coming years. That is not guaranteed. During the pandemic, the firm paused its previously progressive dividend policy. A serious downturn in demand may lead it to cancel or cut its dividend, as it did during the financial crisis.
However, just like Victrex, I think the underlying economics of the business make it an attractive potential addition to my portfolio from a long-term perspective. I think there will continue to be high demand for insurance. The firm’s iconic multi-coloured umbrella logo helps attract and retain new customers. The company has a proven ability to underwrite insurance at profitable rates. Its large customer base also gives it an opportunity to sell a wider range of financial products to customers. That could boost revenues and profits.
Tesco
Another company that has to struggle with cost inflation and logistics challenges is supermarket giant Tesco (LSE: TSCO).
However, people will always need to eat. Tesco is the biggest supermarket chain in the land. It faces pressures from discounters such as Aldi and Lidl. That could eat into profit margins, but one benefit I see is that it forces Tesco to keep its prices competitive. That should be good for its continued attractiveness to customers. Unlike the discounters, it also has a massive digital business that offers future growth opportunities.
The company recently increased its annual dividend by 19% and now yields 4%. I think the growth opportunities here are modest, but if Tesco can simply try and maintain its market leadership that should be enough to generate sizeable profits in future. That could fund more dividend increases. From a buy and hold perspective, I would consider putting Tesco shares in my basket.
British American Tobacco
Finally, with an eye on income, I would happily buy more shares in British American Tobacco for my portfolio.
Like Tesco, I see only modest growth opportunities here. The non-cigarette business has strong growth potential, but that may be largely offset by declining cigarette sales. However, I find the shares attractive because the company’s large sales produce big free cash flows. That helps support the dividend. British American has raised its dividend annually for over two decades and yields 6.6%.
Dividends are never guaranteed and a decline in cigarette sales is a real risk to revenues, although pricing increases may help mitigate the impact on profits for the next few years at least.
My move on these shares to buy now
These five names from my list of possible shares to buy now for my portfolio attract me for different reasons. But what I like about them is that they are blue chip companies with sizeable, proven businesses I think can continue to make healthy profits in the future.
