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UK stocks: my top growth, income and protection picks

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Graph Falling Down in Front Of United Kingdom Flag
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UK stocks are volatile again. The FTSE 100 followed last week’s 1.6% decline with a one-day fall of 2.3% yesterday. The mid-cap FTSE 250 index and FTSE SmallCap index were also hit. Markets have bounced a tad today, but a wide range of stocks remain at discount prices.

With this in mind, here are my top growth, income and protection picks right now. I’d be happy to buy these three stocks for a diversified portfolio.

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My pet growth stock

I think veterinary services provider CVS Group (LSE: CVSG) is a great dip-buy opportunity for me. The company issued a trading update today for its financial year ended 30 June.

The company said: “Continued trading momentum has delivered strong revenue growth.” As a result, it expects to report earnings marginally ahead of market expectations.

The shares are trading on a price-to-earnings (P/E) ratio of 33. And management said: “We look forward to continuing our growth trajectory as we head into the new financial year… We are also well placed to pursue further targeted acquisitions.”

Identifying and integrating acquisitions is part of CVS growth strategy, but comes with risk. There’s always the possibility of a slip-up that could harm my investment. However, CVS has done well on acquisitions so far.

My top UK stock for income

The yields on many dividend stocks have just nudged a bit higher, due to the market drop. As last year’s dividend rout reminded us, payouts are never guaranteed. And the highest-yielding stocks in the most cyclical industries are generally the most vulnerable to cuts.

A high-yield stock in a non-cyclical industry that stands out for me right now is British American Tobacco (LSE: BATS). The running yield is a juicy 7.8%.

In a trading update last month, the company said: “The momentum across the business is strong.” Management upgraded its revenue growth forecast to above 5% from its previous guidance of 3-5%.

Longer-term, regulation is a key risk for BATS. This could threaten the sustainability of the dividend. However, the company is growing its reduced-risk products at pace. And with “a clear pathway to New Category profitability by 2025,” I’m optimistic about the dividend.

My protection pick

Capital Gearing Trust (LSE: CGT) is my top UK stock for some protection in the event of a market crash. This stock hasn’t actually been hit by the recent sell-off, but is one I’d be happy to buy at any time.

Since 2000, shareholders have enjoyed an annualised return of over 8% — more than double that of the MSCI UK index. Furthermore, CGT’s maximum peak-to-trough fall during the period has been just 9%, compared with the index’s biggest crash of over 40%.

Its performance has been down to owning diverse assets. The table below shows its current portfolio breakdown, based on its latest monthly factsheet.

Assets at 30 June Holding (%)
Funds/equities 45
Index-linked government bonds 30
Conventional government bonds 10
Preference shares/corporate debt 7
Cash 6
Gold 2

Past performance isn’t always a good guide to future returns. But I’d expect CGT’s current portfolio to provide some protection against a stock market crash. Of course, if shares fly rapidly north, I wouldn’t expect it to do as well as a 100% equities portfolio.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco. 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.

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