The Covid-19 pandemic has damaged share prices around the world. The FTSE 100 has dropped by 18% year-to-date. The smaller UK index, the FTSE 250, has had a similar trajectory, falling by 21% year-to-date. I believe this has opened up one of the best opportunities to buy UK shares for years.
Of course, with falling share prices, it’s often difficult to determine whether something is cheap for a reason. I think it’s best to be cautious. With that in mind, here are two shares I’d buy and hold for the long term.
The best UK share to buy now?
I love consumable shares, especially when a business sells low-value items that customers always need. Unilever (LSE: ULVR) is probably the best UK consumable company right now, with brands in its portfolio like Marmite, Ben & Jerry’s, and Lynx. Even in times of economic hardship, I think many of Unilever’s products will make it into customers’ baskets.
Unilever’s share price is roughly level year-to-date. This makes its price-to-earnings ratio just 18. I think this could signal that this is one of the best opportunities to buy shares in Unilever at a bargain price.
With Unilever’s strong list of products, I expect brand loyalty from its customers. In the future, I think this will enable Unilever to nudge up prices to further improve margins.
In turbulent times such as these, I think people will seek out shares in companies like Unilever, due to the dependable revenue and profitability the company normally generates.
For similar reasons to Unilever, I think that Diageo (LSE: DGE) shares are currently among the best in the UK. The company’s share price has fallen by 11% year-to-date. Its price-to-earnings ratio is slightly higher than Unilever’s, at 22. With that in mind, the shares can’t be classed as cheap, but I don’t mind paying a premium for a slice of a quality company.
The multinational drinks giant has been hit heavily by the various lockdowns implemented around the world. Unsurprisingly, the closure of bars, restaurants, and hotels has impacted revenues.
However, it’s not all bad news for Diageo. We are slowly seeing a return back to normal, with pubs and restaurants reopening. It might take a while for consumer confidence to return. When it does, I imagine they’ll be returning to their favourite drinks and companies like Diageo will benefit.
The company has a strong portfolio of beverages, including Guinness, Smirnoff, Johnnie Walker, and Baileys. This should ensure that the company has a drink when palates change.
The other thing that makes Diageo one of the best UK shares to buy is its generous dividend yield, which is currently about 2.5%. As my fellow-Fool Edward Sheldon notes, Diageo has notched up its dividend for 21 consecutive years. Edward thinks Diageo is unlikely to slash its dividend any time soon. I’m inclined to agree with him.
With pubs, restaurants and bars reopening, I think now is the time to buy Diageo shares and hold for the long term.
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T Sligo has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Unilever. 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.