Over the past few years, it has often seemed as if the US stock market has had a lot more oomph than London. When looking for shares to buy, casting one’s net beyond British shores could have been a better choice than sticking closer to home.
Over the past five years, for example, the flagship FTSE 100 index has moved up 12% while its New York equivalent, the Dow Jones, has soared 57%. During that period, the tech-heavy US Nasdaq index has leapt 130% while the UK’s large-cap tech-heavy equivalent… does not really exist!
Indeed, the growth of tech shares like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Nvidia has been a key reason for the strong performance of US share indexes over the past few years.
Still, as any savvy investor knows, past performance is not necessarily a guide to what to expect in future. So, what might be the best shares to buy for my portfolio right now: British or American?
Buying individual shares, not an index
The first thing to note is that, as an investor, I typically buy individual shares not an index (though there is an argument for doing that).
So while headline index growth attracts me, it might not be relevant in the context of a specific share. The FTSE 100 may only be up 12% in five years, but FTSE 100 member company Ashtead, for instance, is up 155% during that period.
Yield appeal
A surging US stock market that contains many fast-growing companies means that from an income perspective, I find the UK more attractive than the US right now.
If I was looking for shares to buy with passive income in mind my eye would turn to some high-yield FTSE 100 shares like Phoenix and M&G, both yielding 9.5%.
By comparison the Dow’s highest yielder, Verizon, offers a 6.1% yield.
Going for growth
Still, the US market offers something that is sadly lacking in the London exchange right now: a multitude of large-scale companies with excellent growth prospects.
As an example, consider Google parent Alphabet. The tech giant has massive advantages in a market that is set to keep growing. They include a large customer base, well-established product and service ecosystem, and a proven business model.
There are UK shares to buy for growth, but few if any that I think have the same potential as the likes of Alphabet. But with a price-to-earnings ratio of 24, I would say that is factored into the price.
So, if I want large-scale growth shares, should I buy in the US this autumn, or not?
Valuation matters because overpaying for a share can mean it turns out to be a disappointment, even when the underlying business performs well. If things go badly, that disappointment could be even bigger. AI is a threat to Alphabet’s core advertising business, for example, that could lead to smaller profits.
So, although I like the growth prospects of many US shares, as an investor I always consider valuation. On that basis, with some London-listed blue-chip shares looking very cheap, I think there are some great shares to buy now on this side of the pond!
