Now could be a good time to start thinking about your portfolio moves for 2021. With that in mind, I’m going to take a look at three UK stocks I’d consider buying for a portfolio next year.
UK stocks to buy
Its business model is straightforward. Rightmove is essentially a classified website for property. Its running costs are low, and it charges a fee to sellers who want to list on the platform.
What’s more, due to the low running costs of the business, the company is highly cash generative. It also has some of the highest profit margins of all UK stocks.
Historically, management has returned a lot of excess capital to investors with dividends and share buybacks. However, the outlook for the property market is currently highly uncertain. This suggests management may reduce cash returns in the near term.
Still, Rightmove has a clean balance sheet with a net cash balance and no debt. So, I think the business can weather the crisis and has the potential to resume cash returns on the other side.
The health and safety group Halma (LSE: HLMA) expects its profit to drop by around 10% this year due to the coronavirus pandemic. Nonetheless, like many other UK stocks, the company is well-positioned to return to growth next year when the crisis has passed.
The demand for health and safety equipment around the world has increased dramatically in recent years. This is unlikely to change in the years ahead.
As one of the largest specialist players in the sector, Halma’s size is a crucial competitive advantage. It can offer products and services at lower prices than the rest of the competition.
The business also has a solid track record of buying up smaller companies. The group buys these operations and integrates them into the broader operation, using its scale to reduce costs and improve profit margins. Once again, Halma should be able to resume this buy-and-build strategy when the pandemic has passed.
Paper and packaging manufacturer Mondi (LSE: MNDI) is one of the few UK stocks that seems to have benefited from the coronavirus crisis. The lockdown online shopping boom helped the company offset weaknesses in other areas of its operation.
While the company also suffered from low demand for its other products, it has been able to reduce costs, which should soften the blow. Management is projecting underlying cash profits will decline by around €100m, which is an improvement on the corresponding €150m blow it sustained last year.
The good news is, the firm expects demand to pick up quickly when the crisis has passed. Exports to China were already recovering at the beginning of the summer as the country came out of lockdown.
As the rest of the world follows suit in 2021, shares in Mondi could yield large total returns for investors from current levels. As such, I reckon the company could be the perfect addition to a basket of UK stocks in 2021.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma and Rightmove. 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.