2 picks I’d love to add to my Stocks and Shares ISA in July

Stephen Wright is focused on quality investments in his Stocks and Shares ISA. That means great business, but only when the price is right.

| 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.

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.

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.

I’m always looking to make investments in my Stocks and Shares ISA. Over the long term, I believe the best returns come from owning shares in quality companies. 

Equally though, I think it’s important to invest only when the price is right. And right now there are a few stocks I’d like to buy… but only if the opportunity presents itself.

Quality shares

When I invest, I look to buy stocks that will provide returns for a long time. That means the most important thing to find is a business that will prove durable. 

This usually means a firm that dominates its industry or has something that differentiates it from its competitors. This allows the company to generate strong shareholder returns.

The trouble is, shares in these businesses are typically expensive. And even the best shares can be bad investments if the price is too high. 

Despite this, the stock market has a way of doing unexpected things. So it’s worth being prepared for opportunities that might present themselves.

Diploma

I sold my stake in FTSE 100 distribution company Diploma (LSE:DPLM) just over a year ago at a price of £28.18. The stock is now trading at £41.52.

Diploma isn’t just a distributor. It differentiates itself by offering a bespoke service, strong technical knowledge, and a scale that allows it to get products to customers quickly.

This makes it difficult to disrupt, but I decided the stock was too expensive and sold it. Since then, the company has grown strongly both organically and through acquisitions.

I still find it hard to consider buying it today at a price-to-earnings (P/E) ratio of 48. But if that comes down in July, I’d love to buy it for my ISA again.

CostCo

CostCo Wholesale (NASDAQ:COST) is one I’d love to own in my ISA. It has the lowest prices in the industry and a business model that helps it maintain this position.

Unlike other retailers, CostCo charges a membership fee to shop in its outlets. Having this additional revenue stream allows it to charge less for products than its competitors.

This attracts more customers, which results in more membership fees and the cycle repeats. It’s a terrific strategy that has taken the stock from $268 to $862 over the last five years.

Given its size, I’ve become a little wary of CostCo’s growth prospects. I therefore wouldn’t buy it at a P/E ratio of 53, but I’d jump at the chance to buy shares at a better price.

Investing: the basics

Fundamentally, for shares in a company to be a good investment, the business has to generate enough cash to justify the current price. That’s the basic idea behind investing.

At the moment, Diploma has a market cap of £5.5bn and generates £187m in free cash – a 3.5% return. CostCo earns $7.4bn with a market cap of $381bn, which is a 1.9% return.

A lot of growth is therefore already priced into both stocks, so I’m watching them from the sidelines for now. But if a better opportunity presents itself, I’ll be ready to make a move.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Don’t look now, but the FTSE 100’s beating the S&P 500 in 2025…

So far this year, UK stocks have been doing better than their US counterparts. So is the FTSE 100 the…

Read more »

Investing Articles

How much would someone need in UK shares to earn £5,000 in passive income each month?

Thousands of Stocks and Shares ISA investors have built up more than a million pounds and can sit back and…

Read more »

Investing Articles

£10,000 invested in Tesla stock 1 month ago is now worth…

Tesla stock is remarkably volatile for a mega-cap company. While this presents some opportunities for investors, it’s also inherently risky.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This under-the-radar software company could be one of the UK’s finest growth stocks

Hidden beneath the FTSE 100 and the FTSE 250, Stephen Wright thinks there are some outstanding growth stocks for UK…

Read more »

Investing Articles

£20k across these exchange-traded funds (ETFs) would have almost doubled an investor’s money in just 5 years!

Exchange-traded funds (ETFs) can be a powerful weapon in managing risk AND boosting returns. Here are two of my favourites.

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

How much would an investor need in an ISA to earn a £10,000 monthly passive income?

A £10,000 monthly passive income from a tax-free ISA would definitely be life-changing. Dr James Fox explores a formula for…

Read more »

Investing Articles

Here’s how someone could invest £200 each month in cheap shares to target a £7,108 passive income

A couple of hundred pounds a month and some patience could turn into a sizeable passive income generator. Here, our…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Here’s 1 FTSE share I think will soar in 2025

This FTSE share has become a no-brainer buy for my Stocks and Shares ISA. It represents the best opportunity I…

Read more »