To find top UK stocks for 2021 I’ve been looking at the end of last year. Companies that had a strong finish to the year are starting 2021 on the right foot. Many of these are the kind of stocks that I think have the potential to deliver strong returns early in the year, and carry the momentum through. It’s apparent to me that ASOS (LSE:ASC) is a great example of this. And a good end-of-year trading period over Christmas saw the shares rising on Wednesday, even with some bad news around Brexit.
ASOS share price running higher
Starting in the second half of last year, the ASOS share price moved from around 3,300p (the level it started 2020 at) up to the current price of 5,416p. This represents a gain of wel over 60%. I’d written last year about how businesses like ASOS (in the fast-fashion online retail space) had performed well during the pandemic. This was one reason why I bought Boohoo shares in 2020.
Even in the short term, ASOS continued to outperform expectations. In its trading update for the last four months of 2020, it said group revenue rose by 23% to £1.3bn. It added that the lower rate of customers returning goods ordered offset financial headwinds from Covid-19 disruption. The net impact was a positive £40m!
Growth was also seen at the end of the year from international markets. Non-UK sales grew by 16% in the last four months.
The ‘B’ word
International growth is great, but with Brexit finally done, trading abroad could become harder. ASOS specifically noted a £15m increase in costs expected for 2021 due to “country of origin rules”. So far, the shares haven’t seen a material move lower from the Brexit outcome. This is a positive, and I think investors have got this right.
In the 2020 annual report, indirect costs came in at £1.4bn. So although £15m is a lot of money, it doesn’t really make a large difference in the overall costs for a company of this size. The £15m is just a forecast figure and unless it balloons significantly higher, I’m not overly concerned by the Brexit impact.
In fact, depending on the free-trade agreements the UK makes in coming months, ASOS shares may rally on positive trade deals. It could make it easier for the brand to get access to some countries.
Christmas trading for 2020 is over, but for me, the momentum is still with ASOS, and its share price. So as far as my watchlist for top UK stocks goes, ASOS is firmly on it!
But do take note — whenever I’m looking at buying a stock like this, I always check that I’ve got some allocation left in my Stocks and Shares ISA. The allocation has been increasing in recent years and is now £20,000 annually. By putting my stocks in the ISA, I can reduce my capital gains tax liability on dividends earned and when I come to realise any profits by selling a stock that I hold.
