If I had £3,000 at my disposal today, I would go hunting for top British stocks and split my money between three of them. Even though the FTSE 100 has rallied strongly over the last year, there are plenty of opportunities out there as Covid restrictions ease.
Top British stocks like FTSE 100-listed Compass Group (LSE: CGP) are gearing up to benefit from the recovery. Its share price is up 44% over the last year, although growth has flattened out in recent months.
Compass sells catering services to factories, offices, colleges, sports and entertainment facilities. Its business model was inevitably hit hard by the pandemic.
Top British stocks are fighting back
The bulk of its operations are focused on the US, where lockdowns are easing faster than in the UK. Recent Q3 figures showed revenues down a third to £8.4bn, but the future looks brighter, as canteens reopen and profit margins recover. Management has worked hard to keep costs down, and repaid £25m of furlough support.
Business is picking up and half of new contracts are for first-time outsourcers, up from a third pre-pandemic. The big risk is that the recovery stalls, while the working from home revolution could hit canteen demand, but for now Compass is pointing in the right direction.
Water company Pennon Group (LSE: PNN) is a top British utility stock and could balance Compass nicely. The pandemic has hit profits, which fell 12.3% to £215.3m last year. The group has also entered a tighter regulatory period. Pennon did report a full-year profit after tax of £1.8bn, but this was mostly down to the £1.7bn sale of Viridor.
Management is using the cash to pay down £1.1m of debt. It also plans to buy Bristol Water for £425m. It is also lining up a £1.5bn special dividend and £400m of share buybacks. It’s good to see Pennon rewarding loyal shareholders and this offsets the disappointment of last year’s dividend rebasing.
One downside is that its 1.9% yield is disappointingly low. It is set to rise by 2% above inflation for a five-year period but investors could get a better return elsewhere, for example, from top British dividend stock National Grid, which yields 5.3%. That leaves investors relying on some share price growth to get a satisfactory return, which is not guaranteed.
I’d spend my remaining £1,000 on this recovery play
FTSE 250-listed construction group Balfour Beatty (LSE: BBY) expects to claw its way back to pre-pandemic revenues this year (assuming vaccines see off the Delta variant). As the UK’s second biggest building company, this top British stock should thrive when it’s construction time again.
Balfour Beatty enjoys an average monthly net cash balance of around £600m. It is also raising funds from disposals, and plans to buy back £150m of its shares this year.
When the pandemic hit, Balfour Beatty suspended its dividend. It is now starting to repair this, and has a strong £17bn order book. New infrastructure projects include HS2, Hong Kong Airport and Oak Hill Parkway in Austin, Texas. A word of warning. A second-half recovery is priced into this stock, which could plunge if it doesn’t come through.
These top British stocks are not without risks, but all are keen to reward loyal shareholders and I’d happily invest £1,000 in each.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group and Pennon Group. 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.