Here’s one UK share I keep on buying

This writer has been repeatedly buying this UK share for his portfolio. What’s the attraction he sees as an investor?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A young Asian woman holding up her index finger

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It is not hard to find doom-mongers when it comes to the British economy. But as an investor, I think that can offer me an opportunity.

Indeed, I have been adding one UK share to my portfolio repeatedly over the past year, despite it having its fair share of naysayers.

Household name

That UK share is broadcaster ITV (LSE: ITV). The company is a viewing staple across the land, thanks to its presence on television screens in millions of homes for decades.

But as an investor, it is always important to remember that past performance is not necessarily a guide to future performance.

So why have I been adding to my holding?

Strong advertising demand

One of the risks at ITV that helps explain its lacklustre share price performance in recent years is its heavy reliance on the advertising market. If companies cut their marketing spend, the line of reasoning goes that it will lead to lower revenues and profits for broadcasters such as ITV.

There is some merit in this, in my view.

But I think this bearish analysis also misses some important points. Even if it falls, advertising spend will likely still be significant. Any downturn will probably be temporary. In the end, when the economy returns to strong growth and firms are flush with cash, I expect they will start spending more on advertising again.

I am a long-term investor. On that time horizon, I foresee strong advertising demand.

Studios business

Not only that, but ITV is more than just a one-trick pony.

As well as being a broadcaster, it has built an infrastructure that feeds other broadcasters. From studio space to production help, the business offers a range of services that can enable companies such as Netflix bring their projects to market.

I see that as an attractive business in itself. If it was not part of ITV, I think investors would value this Studio arm more highly. Being bundled within the legacy TV broadcaster however, I do not think this business attracts the valuation it ought to.

Attractive valuation

But despite what I see as its attractive characteristics, ITV is still an unloved UK share.

It trades on a price-to-earnings ratio in the single digits and has a dividend yield of over 6%. That seems like an attractive valuation to me.

That raises a question. If this UK share is as attractive as I think, why is it so cheap?

The growth of digital competitors means terrestrial TV is past its heyday. That threatens to hurt revenues and profits at ITV.

I do see that as a risk. But the business has been actively developing its digital footprint and, so far, that seems to be yielding strong results.

Meanwhile, I think ITV’s Studio business could actually benefit, not suffer, from the proliferation of digital channels. Many want to offer original content but may lack the facilities to produce it in-house

I see ITV as a growth stock, but its share price makes it look like a value stock. So I have been buying. If I have spare cash in coming weeks, I plan to buy more ITV shares for my portfolio.

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 assessed. Consider taking independent financial advice.

C Ruane has positions in ITV. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »