If I had to pick a basket of stocks to buy with £3,000, I’d look to invest across different sectors and industries. I’d also focus on companies that may profit from the UK economic recovery over the next few years.
And there are a couple of sectors I’d focus on in particular.
Stocks to buy
The first is the construction sector. There are a couple of individual businesses in this industry I think are prime candidates for inclusion in a £3,000 portfolio right now.
At the top of the list is Morgan Sindall, which provides construction and maintenance services for other businesses, councils and the government across the country.
According to its latest trading update, the company is on track to deliver a full-year performance “significantly ahead” of previous expectations. This reflects the rapidly improving outlook for the UK construction sector.
Other companies in the sector I’d buy include Marshalls and Kingfisher, which owns B&Q. Marshalls sells paving and landscaping products. As the construction industry is a fairly low-margin, high-risk industry, I’d split my investment between Morgan, Kingfisher and Marshalls.
The latter two businesses sell mainly to the consumer market, which has been more resilient over the past 12 months. Still, the construction industry is highly cyclical. This means it might not be suitable for all investors as profits and sales could slump in another downturn.
As well as the construction sector, I think some of the best stocks to buy now are located in the hospitality sector.
However, like construction, this industry might not be suitable for all investors. The crisis has had a severe impact on the hospitality sector, and many companies have had to take on enormous amounts of debt to stay afloat. This could hold back their recovery and even jeopardise their survival.
I’d spread my investment of £3,000 across a selection of different hospitality businesses to try and reduce overall risk. The companies I’d buy for my portfolio are JD Wetherspoon, Fulham Shore and Marstons.
I think the first two have unique competitive advantages that should help them thrive. Wetherspoons is well known for its cheap, no-frills offering. Meanwhile, Fulham Shore owns the Franco Manca pizza brand, which has performed relatively well throughout the crisis. It’s still been able to sell pizzas to stuck-at-home consumers.
The one company that comes with a bit more risk is Marston’s. This corporation has a lot of debt and doesn’t seem to have a particularly unique competitive advantage.
Still, the stock is attractive because it looks cheap. If profits return to fiscal 2019 levels, the stock is trading at a P/E ratio of around 10.
I believe this low valuation could offset some of the risk associated with the stock. This is the primary reason why it qualifies for my list of the best shares to buy.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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.