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2 Shares I Wish Were In My ISA: J Sainsbury plc & National Grid plc

Quality often costs more, but I believe I’ve spotted two high-quality stocks that are currently on sale at value prices — and could be ideal ISA income buys.

The companies in question are J Sainsbury (LSE: SBRY) and National Grid (LSE: NG) (NYSE: NGG.US) — and in this article, I’ll explain why I believe both shares are a buy today.

Sainsbury

For the last year or so, I’ve had a cautious view about Sainsbury: I thought that chief executive Mike Coupe was relying too heavily on its more upmarket reputation to save the firm from the pressures being felt elsewhere in the supermarket sector.

I’m beginning to think I may have been wrong, and that Sainsbury’s quality product and brand are more valuable assets than I realised. Indeed, part of me wishes I had Sainsbury in my ISA, instead of Tesco.

Sainsbury is certainly the only supermarket whose shares I would buy in today’s market: just look at how the orange-topped supermarket is valued for the year ahead, against its main peers:

 

Sainsbury

Tesco

Morrisons

2016 forecast P/E

12.3

22.0

16.7

2016 forecast yield

4.0%

1.5%

3.2%

Price-to-book ratio

0.9

1.45

1.33

Although Sainsbury could still surprise investors with some bad news when it publishes its full-year results in May, I’d say that on these numbers, Sainsbury is the pick of the UK supermarkets.

National Grid

The political backlash that’s hit ‘profiteering’ utility companies over the last year has left National Grid untouched, thanks to the fact that all of its UK income comes from its utility customers, not from consumers.

Ironically, National Grid enjoys much higher profit margins than either Centrica or SSE (which I hold in my ISA):

 

National Grid

Centrica

SSE

5-year average operating margin

25%

6.8%

4.8%

National Grid’s UK business is also unaffected by movements in oil and gas prices, and although it is exposed to gas prices in the US, I don’t think energy costs have as big an impact on National Grid as they do on Centrica and SSE.

National Grid currently offers a 5.2% prospective yield, that’s almost guaranteed to increase in-line with inflation. The shares have fallen back from recent highs of 950p to a far more reasonable 850p, and I believe the high quality, long-term nature of the firm’s income makes it perfect for an ISA holding.

After all, National Grid’s 5.2% yield is worth even more if you keep the shares in an ISA, from which you can withdraw money completely free of income tax, or allow it to compound for long-term capital gains that could help fund your retirement.

Today's best ISA buy?

Indeed, National Grid is one of five top ISA buys recently selected by the Motley Fool's analysts for their latest wealth report, "5 Shares To Retire On".

The other four stocks in the report all offer a similar mix of quality and income to National Grid, making them ideal choices for topping up your ISA before April 5.

It's simple: investing in these stocks could help fund a long-term tax-free income: to find out the identity of the other four companies in this free, no-obligation report, simply click here now.

Roland Head owns shares in SSE, Tesco and Wm Morrison Supermarkets. The Motley Fool UK has recommended Centrica and owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.