UK shares, in general, opened higher in the middle of last week thanks to two shares in particular that I believe are worth the investment. So what was behind the mid-week increase?
A supermarket chain experienced a better-than-expected annual profit while a bank seemed to be bouncing back from past failures and was on the rise. Both of these shares have their own risks and rewards but their businesses look sound to me.
Anyway, enough mysterious elusiveness, let’s take a look at why I would buy these two shares…
Sainsbury’s better-than-expected profit
J Sainsbury (LSE: SBRY) has had a rough time as of late. The share has fallen dramatically while underperforming rival/peer Tesco by a staggering 34%. And Sainsbury’s attempt to strike a deal with Asda also crashed and burned.
So why on earth am I thinking of buying it? Well, Sainsbury’s ended up surprising us all with a higher annual profit than originally expected last week. The unexpected rise in its profit also saw it raising its final dividend by 11%. And the shares are undeniably affordable, having suffered this year as its Asda deal looked increasingly unlikely to be approved.
Undistracted by Asda, Sainsbury’s is now planning to accelerate its investment in its store estate and technology. These plans for the future are much more reassuring than previous news Sainsbury’s has delivered and I believe that its clearer focus on fixing the business it already has, rather than merging with another, means it could soon be back on the rise if it pulls it off. I’ll be watching carefully.
Lloyds could bring big rewards
Lloyds (LSE: LLOY) has been rising steadily this year even though it might be a risky share to invest in given its UK focus at a tough time for the economy. It rose 1.6% on the FTSE 100 on Wednesday after lowering its capital ratio target. It now needs to hold less cash than previously, which was clearly good news for its shares.
I think the price remains reasonable at around 63p at the time of writing. With a dividend yield of 5.12%, it certainly has a lot of earnings potential and is offering higher returns than its peers. And if we get a Brexit resolution soon, sentiment towards the UK economy and businesses that rely on it (like Lloyds) could improve. Its latest quarterly headline profits may not have looked strong but underlying profits rose 8% year-on-year. Putting money into a Lloyds share definitely has its risks, but there is that potential for higher returns. I would consider investing today for the long term and think the price could rise further.
Risk-averse investors might not be impressed as Sainsbury’s has had a pretty bad year, but it seems to be turning things around in terms of profit. Meanwhile Lloyds’ underlying performance seems strong. Both shares fell after their Wednesday rise so the cynics might feel justified in their negative views, but with a promising start to the year for both companies, I would certainly consider investing.
fional has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. 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.