4 gems I’d include in my Stocks & Shares ISA

Jon Smith explains some of the top stocks he’s thinking about including in his Stocks and Shares ISA a we head towards summer.

Smiling senior white man talking through telephone while using laptop at desk.

Image source: Getty Images

My Stocks and Shares ISA is the main home for my investments. It’s a provision by the government that allows me to invest in stocks in a tax wrapper. This means that when I come to sell a particular stock for a profit, I don’t have to pay any capital gains tax. With this benefit in mind, here are some stocks I’m thinking about buying that I think have potential to offer me strong gains in years to come.

Jumping on the bandwagon

One way of identifying companies that could do well in the future is to look at the ones that have done well in the past. History doesn’t repeat itself exactly, but if a stock has done well in the past year, it could have momentum on its side.

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Two examples in this regard are Shell and Glencore. Both stocks have gained over 70% in the past year. This puts both shares in the top 10% of FTSE 100 performers over this time period.

Arguably, the main factor contributing to this success has been rising commodity prices. This has been a theme for a while now, but accelerated earlier this year with the invasion of Ukraine. Restricted supply has pushed prices higher.

For Shell, the oil major controls the whole process from extraction to marketing of oil and refined products. Glencore has a broader exposure to a range of commodities, but has a large trading arm that does well during volatile periods.

I think both stocks could do well this year, as I don’t think the volatility in commodity markets is like to ease. The windfall tax is an unwanted issue in the short run, but this will only reduce profits, not push a company like Shell to making a loss.

More options for my Stocks and Shares ISA

Another way I can find stock market gems for my Stocks and Shares ISA is by using the price-to-earnings (P/E) ratio. This tool can help me to find companies that might be undervalued.

For example, ITV has a ratio of 7.61, with NatWest Group coming in only modestly higher at 8.28. Both are in single digits, and below the FTSE 100 average. I think these kind of firms also are perfect for my Stocks and Shares ISA due to the timeframe involved.

It can sometimes take years before a stock returns to a fairer value. Some might see this as a risk, with better options elsewhere. However, my ISA is for the long term.

I think I’ll buy shares in both companies not only due to the low ratios but also due to my positive outlook. I recently wrote about ITV in detail, noting the 22% increase year-on-year in streaming hours. As for NatWest, the jump in interest rates to 1% over the past few months should help to increase the bank’s net interest margin, increasing profitability.

I do need to be careful about picking stocks with low P/E ratios. Sometimes, the falling share price is due to investors expecting future earnings to fall. If this is likely then I want to avoid buying!

Overall, I’m thinking of buying all of the above shares mentioned for my ISA.

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Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended ITV. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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