The economic outlook for 2021 remains as clear as mud. And judging from recent surveys, many UK share investors think things will get worse before they get better.
I haven’t stopped investing in my Stocks and Shares ISA despite the fog. I don’t plan to stop buying top UK shares either. The FTSE 250 trebled in value in the 10 years following the 2008/2009 banking crisis. And I’m hoping the stocks I’ve bought following the early 2020 stock market crash will soar in the years ahead too.
2 UK shares on my FTSE 100 watchlist
Here are two quality stocks from the FTSE 100 I’d buy in my ISA today and hold for years:
#1: Vodafone Group
City analysts don’t expect Vodafone Group (LSE: VOD) to experience any trading difficulties in 2021. They reckon the FTSE 100 telecoms play will report a 34% advance in annual earnings in this financial year (to March 2021). And they predict a 30% bottom-line rise in fiscal 2022. These figures leave Vodafone trading on a rock-bottom forward price-to-earnings growth (PEG) ratio of 0.6 too.
The rollout of 5G and stringent cost-cutting should benefit the UK share’s bottom line in the near term. And, later out, it can expect a recovery in roaming and steady growth in its business products in Europe to drive profits higher. Of course, Vodafone is a brilliant way to ride soaring voice and data demand in emerging regions too.
This FTSE 100 stock offers plenty for income investors to get stuck into in the meantime as well. Dividend yields for this year and next sit at 6.3% and 6.4% respectively. And Vodafone can rely on its spectacular cash flows and the upcoming IPO of its towers business to finance these chunky payouts.
#2: DS Smith
FTSE 100 packaging firm DS Smith (LSE: SMDS) hasn’t managed to weather the Covid-19 storm as well as Vodafone this year. Severe customer disruption caused sales of its products to slump at the beginning of the pandemic. It’s why City analysts reckon annual earnings will slump almost 30% this fiscal year (to April 2021).
However, the business has picked up strongly since lockdowns smashed trading in the spring. And the number crunchers expect profits at the UK share to go from strength to strength from here on. It’s why they’re expecting a 23% bottom-line bounce in financial 2022.
Even if the global economy faces a prolonged slowdown, DS Smith and its investors don’t have to pull their hair out. The firm supplies almost three-quarters of its boxes to highly-defensive food and consumer goods companies.
However, this isn’t why I think this UK share is a brilliant buy for 2021. Soaring e-commerce packaging demand, allied with reduced demand for plastic parcel protection, both bode well for next year and beyond.
Today, DS Smith trades on a forward price-to-earnings (P/E) ratio of 15 times, making it a splendid pick for value chasers. And its decision to reinstate dividends last week provides yields of around 4% for this year and next too. I own this UK share in my own Stocks and Shares ISA. And I’m tempted to buy some more shares at current prices.
Royston Wild owns shares of DS Smith. The Motley Fool UK has recommended DS Smith. 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.