Why I’d Invest All My Savings In BP plc, SABMiller PLC, ARM Holdings Plc, Unilever plc & ASOS Plc Right Now

BP plc (LON:BP), ARM Holdings Plc (LON:ARM), ASOS Plc (LON:ASC), SABMiller (LON:SAB) and Unilever plc (LON:ULVR) are under the spotlight.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Nine months ago I argued in favour of a portfolio with a weighted beta of 0.72, comprising the following six stocks: 25% of ARM Holdings (LSE: ARM), 12% of Diageo, 18% of SABMiller (LSE: SAB), 30% of BP (LSE: BP), 10% of National Grid and 5% of ASOS (LSE: ASC). 

Here’s how it has performed so far, and why BP and ARM will continue to make up to 55% of my virtual portfolio. 

A Balanced Portfolio

The value has increased by 9% over the period, for an all-in pre-tax return of about 12%, including dividends and excluding costs, since 9 June 2014. The average yield of the portfolio is roughly in line with that of the market, but the FTSE 100 is up only 2% over the period. 

The rise in ARM has been offset by the fall in BP, but I’d retain exposure to both stocks in the same amount. The former is a strong growth play, while the latter is a decent recovery story. 

While I am not too disappointed with the performance of SAB, ASOS and National Grid, I think Diageo is not a stock I’d be happy to retain. Instead, I’d replace it with Unilever (LSE: ULVR). 

Remember: we are after steady, long-term gross returns in the double-digit territory on an annual basis. 

Diageo & SAB

I am not one of those who argue in favour of changes in a portfolio every year or on a quarterly basis, but I am glad to make an exception because Diageo looks a bit expensive, and I am not convinced its management team is doing all it can to deliver value to shareholders.

Last year, I thought Diageo would offer more value than SAB, but the latter’s performance has convinced me that Diageo is not the safest bet in the sector.

SAB has been the subject of recurrent takeover talk for a long time, and its shares have been boosted by takeover rumours in the last 18 months: I don’t buy into an imminent change of ownership, to be honest, and I am betting instead on a recovery in emerging markets and SAB’s strong fundamentals.

As far as M&A talk is concerned, however, it’s more likely that SAB will make another attempt at striking a deal with Heineken, which would benefit its own valuation in the short term. 

Unilever

Elsewhere in the consumer space, Unilever is not incredibly cheap but its stock offers a higher yield than that of Diageo, and its valuation will likely continue to dictate a premium because investors will likely pay up for its quality earnings, particularly if volatility springs back. That means Unilever’s trading multiples will likely rise over time.

I am a big fan of Unilever’s portfolio of products, and its management team boasts a strong track record. On top of that, targeted divestments will boost value in the next 18 months, in my view. 

BP, ARM & ASOS

BP continues to be a rather attractive investment proposition right now, although it’s down 10% since June last year. It will benefit from rising oil prices, which I think are likely from the third quarter onwards. I am cautiously optimistic about its dividend policy, too. BP could comfortably rise above 500p, where it traded in the spring of 2014, and I would be surprised if it disappointed investors in its upcoming results. 

I still like ARM, too, in spite of a terrific rally for its stock in recent months — a price target in the region of £14 is justified based on its realistic growth projections for earnings and dividends, which combine with a rising market share for its core products. 

Finally, ASOS has been holding up pretty well in recent times, and its shares have recovered from a terrific plunge in 2014. They look expensive, but there are a few reasons why shareholders may want to stay invested. Of course, volatility in its stock price could be just around the corner, particularly if operating profit margins remain under pressure or fall, but that’s why only 5% of the portfolio would be invested in this high-risk stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. The Motley Fool UK owns shares of ASOS and Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »