Despite a few wobbly moments (April, anyone?), many UK stocks have been charging ahead in 2025. For how long this will continue is impossible to say — we might even be on the cusp of a monumental collapse in both prices and sentiment.
But this uncertainty doesn’t stop me from drawing up a list of companies I’d love to buy at lower prices if/when the tide turns.
What I look for
Now, I don’t ask for much. I’m not bothered about trying to predict the next tech unicorn. Calling that correctly would be nice. But the probability of doing so is (very) small.
Instead, I look for high-quality businesses that stand a good chance of growing my wealth over the long term. I say ‘good chance’ because there are no guarantees. Past performance doesn’t dictate future returns.
But it does count for something.
In practice, this means gravitating towards businesses with great brands, a market-leading position and fat margins.
It means looking for firms in fine financial fettle.
And it means looking for companies with realistic strategies for growing revenue and profits going forward.
Top of the UK share pops
One example is fantasy figurine maker Games Workshop (LSE: GAW).
The Warhammer 40,000 owner has been a spectacular investment over the long term. Even today, its scores on traditional financial metrics blow most UK shares out of the water. It also satisfies all of the characteristics described above, at least in my opinion.
But I’m not alone in thinking this. Tellingly, CEO Kevin Rountree bought almost £400,000 of stock at the beginning of August. He’s put similar amounts to work at the same time in previous years.
Sure, he won’t be short of a few bob. But I’d say it’s a good sign if someone with a front row seat for a company’s performance is increasing his stake.
No sure thing
Naturally, things could unravel for Games Workshop as much as they could for any listed company. Sure, fans have continued to pay for sets despite the cost-of-living crisis. But this might not continue. Inflation is bubbling away and who knows what Chancellor Rachel Reeves may reveal in her forthcoming Budget.
We also need to keep the valuation in mind. A price-to-earnings (P/E) ratio of 27 for the current financial year is high. And highly-valued stocks tend to be hit the hardest when markets tumble. I’d prefer to buy if the P/E sank to being in the high teens or lower.
But these concerns are precisely why the £4.8bn cap isn’t the only UK company I’ve been running the rule on. To mitigate risk, I’m also looking for ‘best of the best’ stocks in other sectors.
This safety-in-numbers approach — otherwise known as diversification — won’t stop the pain completely if markets head lower. But it may be enough to prevent me from making any silly, impulsive decisions if one or two really suffer.
Staying cautious
Share prices seem to have become increasingly detached from economic reality this year. Perhaps this will continue until 2026, perhaps ‘it really is different this time’.
Personally, I’m not convinced. Human psychology and basic economics dictate that every party ends at some point. Thinking ahead and considering the worst-case scenario — and how to take advantage of it — seems prudent to me.
