UK shares are taking a beating at the moment (9 March). But some brave investors are still buying. Which stocks are they adding to their portfolios? Let’s take a closer look.
An alternative Magnificent 7?
investment platform Trading212 regularly publishes a list of stocks popular with its clients. And over the past week, seven UK shares have stood out in the top 100.
There are two ways of determining their favourites. Trading 212’s preferred approach is to look at the increase in the number of accounts holding a particular stock. The other method is to consider the percentage increase. Using either, the top two stocks – Shell and BAE Systems – are the same.
With oil and gas prices rising dramatically, it’s no surprise that energy stocks, like Shell and BP, are back in fashion.
Similarly, with stockpiles of missiles and drones likely to need replenishing, it’s obvious why defence contractors — such as BAE Systems and Babcock International Group — are also on the list.
However, the other three picks are a little surprising to me. Don’t get me wrong, I think all three are excellent well-run companies. But with so much uncertainty around at the moment, I think their share prices could have further to fall.
| Rank | Stock | Increase in the number of clients owning the stock | % increase |
|---|---|---|---|
| 1 | Shell | 7,423 | 8.13 |
| 2 | BAE Systems | 7,380 | 5.84 |
| 3 | BP | 7,197 | 4.08 |
| 4 | Rolls-Royce Holdings (LSE:RR.) | 6,106 | 2.32 |
| 5 | International Consolidated Airlines Group | 2,436 | 5.12 |
| 6 | Lloyds Banking Group | 1,766 | 1.25 |
| 7 | Babcock International Group | 1,319 | 4.22 |
Grounded
For example, although I can see the defence division of Rolls-Royce benefitting from the current tragic conflict, the majority of its earnings come from its civil aviation business.
And with many flights being grounded, the group’s flying hours are likely to be lower than anticipated. This is important because revenue is earned when its engines are being used.
According to Flightradar24, during the first week of the conflict, around two-thirds of scheduled flights were cancelled at the largest airports in 10 of the countries involved. It’s impossible to know how many would have been powered by Rolls-Royce’s engines. But with the group’s extensive global reach, it’s likely to be a significant number.
Don’t get me wrong, I think Rolls-Royce is a great company with huge potential. Its small modular reactor programme and its plans to re-enter the narrowbody aircraft engine market are, in my opinion, likely to be extremely lucrative in the 2030s and beyond.
But I think it would be wise to wait until the war is over before considering buying the group’s shares. Although the current conflict is a regional one, the pandemic was a scary lesson in how vulnerable the group is to a prolonged period of disruption.
And I think the same argument applies to International Consolidated Airlines. It’s too early to fully understand the investment case.
And finally…
As for Lloyds Banking Group, I suspect Trading 212’s clients are viewing the 17.5% drop in the bank’s share price from its 52-week high as a buying opportunity.
And with the oil price rise causing many to predict that interest rates will now stay higher for longer, it could be one of the few beneficiaries. However, a global slowdown — particularly in the UK — would affect the bank’s earnings and increase the threat of bad loans.
When the conflict ends, as we hope it will soon, we’ll be in a better position to know who the long-term winners and losers are likely to be. That’s why I’m trying to save as much as I can to take advantage of the many bargains that I suspect will soon become available.
