UK shares continue to be volatile as uncertainty in the stock market persists. Falling inflation has alleviated a lot of pressure on businesses. But there are still plenty of other macroeconomic factors dragging down performance.
For example, the UK is officially in a technical recession, and the political landscape is heating up with an upcoming general election.
While there’s some cause for concern in the short term, the long-term picture for many beaten-down enterprises continues to look promising. And it seems other analysts agree as predictions from the Economy Forecast Agency indicate the FTSE 100 could climb by 10% to a new record high by the end of 2024.
Forecasts always need to be taken with a pinch of salt. But if this proves accurate, then March could be a terrific time to start snapping up shares, especially with the April ISA deadline just around the corner.
Finding the best shares
The political impact on businesses can be significant in the short term. But provided the underlying company is well-capitalised and already preparing for different election outcomes, the long-term impact often ends up being negligible.
Therefore, instead of hunting for firms set to benefit or suffer depending on which party takes power, investors should focus on underlying qualities and competitive advantages. In the end, these are the factors that have the most influence over the success of an enterprise.
A company with a well-funded balance sheet, a promising product or service, and a sound long-term strategy is far more likely to deliver impressive returns in the long run. And that’s why Keywords Studios (LSE:KWS) continues to be a top pick for my portfolio right now.
Opportunities in gaming
The video games industry has endured its fair share of challenges lately. Apart from the various worker strikes, the cost-of-living crisis has diminished short-term demand, hitting the breaks on growth. That would certainly help explain the 50% decline in Keywords Studios’ share price over the last 12 months.
Yet a closer inspection of the group’s financial performance paints a different picture. Revenue growth for the year came in 17% higher on a constant currency basis. And while Keywords ended up suffering a direct cost of €20m from the US strikes, adjusted operating profit is set to land higher at €122m versus €114.6m a year ago.
Something that seems to have investors on edge is shrinking profit margins. After all, at the end of 2023, they stood at 15.6% versus 16.6% in 2022 and 17.3% in 2021. However, the guidance suggests this decay is coming to an end, with margins expected to stabilise in 2024 before starting to recover alongside the gaming industry as a whole.
In other words, the worst may now be over for this business. And providing no other spanners are thrown into the works, investors may be looking at a terrific long-term buying opportunity this month.
