After recent turbulence in stock markets, some shares are now selling for much cheaper than before. I have been looking for UK shares for my portfolio. If I had a spare £500 to invest, I would consider splitting it evenly between these two.
Unilever
The consumer goods company Unilever (LSE: ULVR) continues to look unloved by many investors. Its shares have fallen 19% over the past year. They are now well below the price Warren Buffett offered to pay five years ago when he wanted to buy the whole company.
I see some risks that could help explain the poor performance. Cost inflation could hurt the company’s profit margins. Indeed, the company called the current cost inflation “unprecedented”. I do not think that is historically accurate, though. Unilever has operated through periods of high inflation before, such as the 1970s. At such times, customer loyalty to its portfolio of premium brands gives the company room to raise prices.
That is what it has been doing. In the first quarter, sales volumes fell 1% compared to the same period a year before. But revenue increased 7.3%. That shows the power of price increases. I think the company’s collection of iconic brands such as Dove and Domestos could help revenues keep growing. Once inflation falls, profit margins could also grow.
Meanwhile, the company’s stream of quarterly dividends continue. Indeed, it paid the latest one today. The share price fall means that Unilever now yields 4.1%. I like the dividend yield, long-term growth prospects and pricing power. That is why I would happily tuck Unilever in my portfolio now to hold for the coming years.
Howden Joinery
I would also consider adding timber merchant Howden Joinery (LSE: HWDN) to my portfolio.
The shares have performed worse than Unilever over the past year, falling 22%. Howden faces similar risks when it comes to inflation. On top of that, though, there are concerns about a recession lowering demand for building products. If there are fewer home renovations or new houses built, that could spell lower revenues and profits at Howden.
Why would I still see these as shares to buy for my portfolio despite that? Basically, I think Howden has the attributes of a long-term growth business. Its strong brand and deep relationship with tradesmen help build customer loyalty. It benefits from economies of scale. Even if the housing market falls, there will still be ongoing demand for a lot of home renovation products.
Post-tax profits last year more than doubled, to £315m. Revenue was also up by over a third. The falling share price means Howden now trades on a price-to-earnings ratio of 12 and has a 3.2% dividend yield. I would consider buying it to hold in my portfolio for the long term.
Foolish final thoughts
Both Unilever and Howden Joinery have fallen in price, reflecting concerns about prospects for their businesses. But both have competitive advantages I think could form the foundation of future success. That is why, as a buy-and-hold investor, I would consider snapping them up today for my portfolio.
