3 of the best UK stocks to buy in 2021 for long-term returns

As the nation bounces back from the effects of the pandemic, here are my picks for stocks I’d buy in 2021 for long-term returns.

| 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.

As the UK recovers from the effects of several complete lockdowns, the economy is bouncing back strongly. The FTSE 100 index is up 14.52% in the last year and has been rising steadily since the pandemic-driven slump. I believe this bull run could continue well into next year (as long as the pandemic plays ball), making it a great time to think about stable investments. With that in mind, here are the three stocks I’d buy in 2021 for long-term returns. 

Cashing in on the ‘grocer boom’

Tesco (LSE: TSCO) is the UK’s most popular supermarket chain with a whopping 27% market share. The grocer made a steady start to 2021 and stock prices remained stable after a £4.99bn dividend payout and subsequent share consolidation in mid-February following the sale of its Asian operations for £8bn.

News of a private equity takeover bid for rival supermarket Morrisons caused a spike in the share prices of most large UK supermarket chains. Tesco stock rose 1.7% and has seen a steady increase since, with its share price hitting a three-month high of 236p last week. 

And the board has predicted 20% growth in operating profits by the end of 2021, which could increase the already robust dividend yield of 4.2%.

The most concerning factor for me are the razor thin margins of in the supermarket industry. The competition could force further price cuts from Tesco, reducing profits. But the renewed focus on the UK market, increasing dividend yield, and attractive entry price puts Tesco at the top of my watchlist of the best stocks to buy this year.

Entertainment industry pick 

ITV (LSE: ITV) remains a solid pick for me too when I look at long-term returns. With popular programming returning to terrestrial TV, the broadcaster has seen improved results in the last six months. The company is also seeing an increase in cash flow with the return of advertising revenue, which is predicted to rise between 85% and 90% in June, compared to anaemic 2020 levels. 

Its move into online video services with ITV Hub is a shrewd one that shows me the company is future-focused. This product saw its user base grow by 5% to 33.6m last month. And while the company would again be subject to production restrictions if the current spike in Covid-19 cases leads to another lockdown, I remain optimistic. I think ITV could see a steady increase in viewership and ad revenue, qualifying it for my list of the best stocks to buy in 2021 for long-term returns. 

Drinks giant

And just as entertainment is back on the agenda, so is socialising, which should help one company I’m watching keenly in the food & beverage space — Diageo (LSE: DGE). The alcoholic drinks business has seen sustained growth since the gradual lifting of restrictions. Restarting sporting events, festivals and other group/social occasions has caused a spike in the share price too, with the company seeing a 17.92% rise in the last six months and almost a 24% increase in the past year. 

The next easing of restrictions means nightclubs can resume operations, which could see a further surge in sales. That said, it could also mean a surge in Covid cases, so the business isn’t risk-free. However, Diageo still earns a spot on my 2021 buy list.

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.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, ITV, Morrisons, and Tesco. 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 »