3 shares to buy for 2021

Here’s why I’m considering these three shares for my portfolio right now, one following the cyclical housebuilding theme and two in other sectors.

| 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.

I’m considering three shares for my own portfolio right now. And if I buy them, they’ll be constituents of a wider portfolio of holdings diversified across various industries and sectors.

One investing theme that interests me is housebuilding. With interest rates at record lows, there’s a tailwind driving the housing market in the UK.

I reckon the housebuilders are shares to buy

The London-listed housebuilding companies have been trading well for years. However, most of them suffered a setback in 2020 when the pandemic arrived. And their share prices plunged along with those of many other companies last spring. But housebuilding stocks have been clawing their way back up because of recovery in their underlying businesses. I reckon there’s still time to invest in the sector.

For example, I like the look of FTSE 100 constituent Barratt Developments (LSE: BDEV). Today’s half-year results report covers the six-month period to 31 December 2020 and contains some encouraging figures. For example, compared to the year before, completed homes rose by just over 9%. Revenue increased a little over 10% and there was a 1.5% advance in earnings per share.

A strong cash performance backed those figures. Net cash on the balance sheet increased by just over 155% to a little under £1,107m, up from just under £434m a year earlier. And the directors reinstated shareholder dividends by declaring an interim payment worth 7.5p per share.

Chief executive David Thomas said the fundamentals of the housing market are attractive and the outlook for the full year is “in line with expectations.” And City analysts predict a rebound in earnings in the current trading year of around 26% with a further advance of 10% the following year. That figure isn’t guaranteed, of course.

Meanwhile, with the share price near 684p, the forward-looking earnings multiple is just above 10 for the trading year to June 2022. And the anticipated dividend yield is around 4.6%. That valuation looks undemanding, so what could go wrong with my investment? The answer to that question is… plenty! There’s always risk involved when investing in shares.

Diversification to balance cyclicality

One danger is that the inherent cyclicality of the industry could lead to volatility in the company’s earnings, dividends, and share price. It’s possible that a five-to-10-year investment could lead to a flat investment outcome. I could even lose money on my investment rather than making gains, and that outcome could occur despite apparent growth in the underlying business.

So I’d diversify into other sectors and stocks too. For example, I’m keen on the strong and consistent cash flow recorded over several years by pharmaceutical giant GlaxoSmithKline and meat-focused food producer Cranswick. However, growth in earnings has been elusive for GlaxoSmithKline, dividends have been flat, and the share price has been weak.

And Cranswick sports a rich-looking valuation and a low dividend yield. However, I think the firm looks well placed to raise the shareholder dividend incrementally in the years ahead. On balance, I like the defensive cash-generating qualities of these two and see them as a good contrast and diversification compared to the cyclicality of Barratt Developments. I’m tempted to buy shares in all three of these companies right now, despite the risks.

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.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.

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 »