The FTSE 100 reached record levels in February. As someone who wants to buy UK shares, this presents something of a challenge.
I think that the index contains some great stocks. But even the best companies can be bad investments for someone who overpays for them.
Right now, shares in Experian, Halma, and The London Stock Exchange Group all trade at price-to-earnings (P/E) ratios above 30. At those levels, I think they look expensive.
Despite this, I feel there are still good investment opportunities in UK stocks. Here are two that stand out to me.
Primary Health Properties
First up is Primary Health Properties (LSE:PHP). It’s a FTSE 250 constituent and is on my list of buy candidates for my Stocks and Shares ISA in March.
The company is a Real Estate Investment Trust (REIT). That means that it makes its money by leasing properties to tenants and distributing its rental income to shareholders as dividends.
Primary Health Properties focuses on GP surgeries and pharmacies. Around 90% of its income comes from one source – the UK government.
Ordinarily, that might be risky. The danger with getting most of its rent from one source is that if the tenant goes away, then most of the company’s income goes with it.
In the case of Primary Health Properties though, I think this is unlikely to be a problem. The government’s commitment to the NHS and primary care solutions looks robust to me.
When I invest in REITs, I expect most of the return to come from the dividend. Right now, the stock has an eye-catching yield of just over 6%.
The dividend has also been growing consistently for the last 26 years. I think the future looks bright for Primary Health Properties, so I’m looking to buy it today and hold it for a long time.
Howden Joinery Group
If the UK is in a recession, Howden Joinery Group (LSE:HWDN) either doesn’t know or doesn’t care.
The kitchen supplier is continuing to expand in the UK and in Europe.
The company’s share price is 22% higher than it was at the start of the year and with the dividend yield below 3%, it might look like investors have missed the boat here. But I think that’s a mistake.
It’s true that buying Howden’s shares now is riskier than it was at the New Year stage. But they’re still 11% cheaper than they were 12 months ago.
At a P/E ratio of just under 11, the stock trades roughly in line with the FTSE 100 average. And with no debt, the company is in a stronger financial position than most of its peers.
Management also reported strong margins in its last trading report. With this type of business, I see that as a sign that the company is able to pass on the higher costs of inflation to its customers.
Tighter economic conditions might be a challenge for Howden’s moving forward. But so far this seems to have been a tailwind, with more people choosing to improve rather than move.
Compared to other stocks, I think Howden Joinery Group offers good value. It’s on my list of stocks to buy this month.
