Even though the continued pandemic may dent the euphoria, I reckon some shares will perform well because of this. Here are four of them: 

#1. Auto Trader could see market improvements

Digital marketplaces are will only grow over time and Auto Trader can win just by being a well-run business in the segment. It has taken a financial hit this year, but it’s optimistic about its long-term prospects. So are investors in the stock, going by its share price performance. It has shown a strong comeback since the stock market crash and is now trading at a price-to-earnings (P/E) ratio of 36 times. 

With the Brexit deal done, it can get a further boost as prospects for the UK, its main market, improve.

#2. Burberry could see post-Brexit stability

While this FTSE 100 luxury brand and retailer has a significant global presence, Europe is an important market for it as well. Exact revenue from the continent is unknown, because it’s reported clubbed together with revenues from the Middle East, Africa, and India.

All together they are 37% of the total, of which I’m guessing a non-trivial proportion is from Europe. With a Brexit deal in place, the threat of any loss of business on lack of regulatory clarity or higher taxes has now dissipated. 

The Chinese market, a big one for BRBY, is anyway on the upswing, as is its share price. With its European market now better placed too, 2021 can be a good year for the stock. 

#3. Segro to benefit from UK’s online shopping

The FTSE 100 real estate investment trust, with interests in warehousing properties, released a positive trading update in late October. It has signed new contracts and its rental income is healthy too. With the uptrend in online shopping expected to continue, especially because of the pandemic, Segro’s fortunes can also be reasonably expected to move in that direction.

This is even more so after Brexit, considering that it operates in the UK and some parts of Europe only. Better prospects for the UK can boost Segro’s business further.  

#4. Persimmon to get Brexit boost

FTSE 100 real estate stocks were among the biggest gainers last year when Boris Johnson won the UK general election with a clear majority. I reckon that with greater certainty on Brexit now, they can show even greater gains. 

If the stamp duty waiver is withdrawn, as currently planned, there will be a hit to the real estate market. But if the pandemic comes under control soon, it may only be a short-term one. PSN, with its share price performance and dividend yield, is my preferred stock among the real estate set. 

The post Post-Brexit investing: 4 FTSE 100 shares I’d buy now appeared first on The Motley Fool UK.

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Manika Premsingh owns shares of Burberry. The Motley Fool UK has recommended Auto Trader and Burberry. 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.

Personally, I’d much rather snap up a different lowly-valued company in London’s top tier. Before revealing its identity, however, here’s why I’m not rushing to join the queue for the battered bank.

Why I’m avoiding Lloyds shares

Perhaps the biggest reason, at least right now, is Brexit. The manner of our increasingly messy departure from the EU looks like being decided at the very last minute. Should the UK and EU fail to agree on a trade deal, I think it’s likely Lloyds will bear the brunt of the fallout. A likely reduction in economic growth could put pressure on its share price, at least until the dust settles.  

A second reason I’m avoiding Lloyds shares relates to its exposure to the housing market. Being the UK’s biggest mortgage lender might not sound like a bad thing given how hot property currently is. Even so, I suspect it might get increasingly unattractive as the full economic impact of the coronavirus is felt.

The possibility of a third lockdown in January heaps yet more pressure on businesses. The extension of the furlough scheme until the end of April may soften the blow, but unemployment rates are surely still set to rise in the near term. This will put further strain on those already struggling to make their mortgage payments. Yes, another fall in interest rates might help but that’s also bad news for margins at Lloyds. 

Third, Lloyd yields less than 1% at the moment. This is problematic for me since the sizeable pre-coronavirus dividend stream was one of the biggest attractions for holding the shares. I’m not as optimistic as others that this will be hiked significantly in FY21. 

Taking all the above into account, I think there are far better ‘cheap’ stocks on the market right now. 

Better FTSE 100 bet

One FTSE 100 stock I’d be far more interested in buying at the current time is pharmaceutical giant GlaxoSmithKline (LSE: GSK). 

Glaxo is unlikely to be impacted by any political shenanigans in the same way as Lloyds. At the end of the day, people will always require what it produces, even if year-to-year earnings aren’t totally consistent. Moreover, its truly global geographical reach means Glaxo, unlike Lloyds, will benefit from a fall in the value of sterling in the event of no deal.

Then there’s the price. At less than 12 times expected FY21 earnings, GSK’s valuation feels dirt cheap to me for a major player in a highly defensive industry.

Another reason why I’d buy Glaxo over Lloyds shares is the possibility of further consolidation in the pharma space. AstraZeneca‘s planned merger with Alexion may push other giants to come knocking on Glaxo’s door in 2021.

A final motivation is income-related. A likely 80p per share return in this financial year gives a yield of 5.9%. For comparison, the best instant access Cash ISA available returns just 0.6% a year. 

All told, Glaxo seems a far better FTSE 100 buy at the moment, I feel. Lloyds shares could still make me money over the long term, but I’m not sure my patience will stretch that far. 

The post Investors are buying Lloyds shares. I’d snap up this cheap FTSE 100 stock instead appeared first on The Motley Fool UK.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended GlaxoSmithKline, Hargreaves Lansdown, and Lloyds Banking 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.

FTSE 100 global play

If I’m going to avoid the nastiness of a no-deal exit, it makes sense to buy shares in global players. Top-tier drinks behemoth Diageo (LSE: DGE) is surely a great example. It sells its premium spirits in 180 countries around the world.

This geographical diversity is important since a disorderly Brexit could see the value of sterling fall once again, helping exporters. Indeed, it’s one of the reasons why the FTSE 100 index has done so well recently.

But Diageo has other attractions. In my book, it’s also one of the best ways to play the bounce in equities once the coronavirus storm has passed. 

Like many stocks, Diageo has enjoyed a nice recovery over the last few weeks following news of several vaccines proving effective in fighting the coronavirus. Since the beginning of November, shares are up 17%. This suggests investors are confident that bars, restaurants and sporting venues will be able to completely open their doors at some point in 2021, thus helping revenue and profits to recover. As such, the £68bn cap is still a buy, in my opinion.

Back in fashion

Despite the uncertainty surrounding Brexit, I’ve been slowly accumulating a position in luxury brand Burberry (LSE: BRBY) throughout 2020. Like Diageo, the FTSE 100 stock sticks out as a great buy given that a huge proportion of its earnings come from Asia and its increasingly affluent middle class. 

Burberry is, of course, a highly desirable brand. As I see it, the demand for luxury goods will continue to grow regardless of the outcome of the current negotiations. Those who can afford to buy Burberry’s products will do so. Never underestimate our desire to stand out from the crowd!

Burberry’s shares are up 16% in the last month. Even so, I still believe the company is undervalued, at least relative to other global luxury brands. Further gains could be on the cards when it next reports to investors in January.

Copper load of this

A final FTSE 100 stock I’d consider as a way of navigating a no-deal scenario would be miner Antofagasta (LSE: ANTO). Having extracted copper from its operations in Chile, the company then sends it to buyers around the world. Importantly, Anto generates 100% of revenues from outside the UK. In fact, most of its copper goes to Asia. 

Naturally, any investment in a company exposed to commodity prices — something it has no control over — involves risk. Even so, I think the outlook for companies like Antofagasta is very encouraging. 

Thanks to the excitement surrounding the EV revolution and clean energy in general, the copper price has been in fine form recently. Accordingly, Anto’s share price has also soared 24% in just one month!

Sure, there will be lots of ups and downs ahead. Nevertheless, I believe the miner could be another way of reducing Brexit-related portfolio exposure. Deal or no deal, Antofagasta could prove a cunning buy in years to come.

The post Scared of a no-deal Brexit? Here are 3 of the best FTSE 100 shares I’d buy today appeared first on The Motley Fool UK.

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Paul Summers owns shares of Burberry. The Motley Fool UK has recommended Burberry and Diageo. 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.

As unsettling as all this might be for an already-skittish market, I don’t think it should bother Foolish UK investors all that much. Indeed, in my view, now is precisely the time to follow the guiding principles of the world’s greatest stock picker, Warren Buffett.

Buffett would buy the (Brexit) fear

Investors might assume that Buffett’s wisdom has little relevance as far as Brexit is concerned. After all, the ‘Sage of Omaha’ has invested most of his time, energy, and money into US businesses.

I disagree. Buffett’s philosophy is universal because all investors endure the relentless internal battle between greed and fear, no matter where in the world they might be, or what the current ‘crisis’ is. 

Buffett’s recommendation that we should “be greedy when others are fearful” is therefore pertinent when it comes to Brexit. There’s certainly plenty for businesses to be scared about right now. As well as being prevented from recruiting staff from the continent, many will worry about raising prices on products they sell, tariffs and delays at ports. 

I see this is an opportunity for UK investors. The fact both sides will emerge as losers from a disorderly Brexit must be borne in mind. As such, I think it’s important to keep buying stocks, even if their prices remain volatile going into 2021.

But what should investors be buying? Again, I’d follow Buffett’s lead.

Look for quality

He concentrates on finding quality stocks. For him, these are companies that have some sort of ‘moat’ — a competitive advantage that rivals find tough to erode. On top of this, Buffett looks for consistently rising profit margins and low debt.

But not paying too much for stocks is also important. Right now, I suspect the UK stock market still offers significant value, particularly relative to Buffett’s own US market. As a result, I’d be looking for domestically-focused firms that have little reliance on the EU. Alternatively, I’d buy FTSE 100 stocks that, thanks to having operations across the world, derive only a modest amount of their revenue and profits from across the Channel. 

Hold “forever”

One reason why Warren Buffett is so wealthy is down to the fact he sets out to hold stocks “forever”. In other words, he doesn’t get shaken out of great businesses for political or economic reasons. He regards himself as a business owner, not a share price speculator. 

Here at Fool UK, we adopt the same mentality. It’s not pleasant to see a portfolio temporarily fall in value. However, history shows the trajectory of share prices over the long term is most definitely up.

Knowing that even a global pandemic couldn’t stop the ascent of share prices for long gives me confidence that buying stocks at the height of the Brexit crisis will also turn out well. I suspect those adopting Buffett’s way of thinking will be richly rewarded… in time.

The post Forget Brexit. I’d use the Warren Buffett method to get rich! appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Why the FTSE 100 index can push ahead

The odds are still strong. Two people have just been vaccinated against Covid-19 in the UK, which means that we are now indeed at the beginning of the end of the pandemic. Of course it’s entirely possible that the vaccine might not work, or have unexpected side effects, but I imagine that there’s a good chance that things will go right. 

The economy’s also doing alright. At the very least, it’s responding to the fiscal stimulus. I mean, just look at the real estate sector. Despite slow growth, house prices in the UK are at record levels. 

I’m even hopeful on a Brexit deal now. Just the day before yesterday I wrote an article saying that the FTSE 100 index can plunge to 5,000 if we have a no-deal Brexit. But by yesterday things turned around, somewhat. Prime Minister Boris Johnson announced the elimination of contentious clauses, according to a Financial Times report. This basically makes the possibility of a good Brexit deal stronger. 

To be fair there are contradictory reports on what’s really going on with regards to the Brexit deal. But if there’s reason for optimism, I’d go with that, like all other FTSE 100 investors seem to be doing. 

The FTSE 100 index is already close to 6,600 levels as I write. It has gained over 800 points since the beginning of November. To me it sounds entirely plausible that it can gain another 400–500 by the end of December. 

This is all very good. 

The big question now is — what should we as investors do about it? 

Investing in the bull run

I, for one, am in a mood to book (some) profits. As a result of the recent stock market rally, many of my stock market investments are showing pretty returns. I have no doubt that these quality FTSE 100 shares’ prices will rise even more in the coming years. But I also want to receive some rewards from my investments. One of these is JD Sports Fashion. 

The next step will be to re-invest these gains into good stocks that are still quite cheap. Some safe stocks, for instance, have seen share price softening as beaten down stocks’ prospects look better now that the Covid-19 vaccine has been developed. Ocado and Rentokil Initial are two such examples.

I’m also considering loading up on relatively high-risk shares like easyJet and IAG. I’m particularly encouraged since my EZJ buy turned green after months of what looked like a catastrophic meltdown. There are many others to consider that may well double my money soon enough. 

The post Can the FTSE 100 index push past 7,000 by the end of 2020? appeared first on The Motley Fool UK.

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Manika Premsingh owns shares of easyJet, JD Sports Fashion, Ocado Group, and Rentokil Initial. The Motley Fool UK has no position in any of the shares mentioned. 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.

Is this now a home run for investors? I’m not so sure.

Priced in? 

Having been so battered in 2020, the tilt to value stocks — particularly those operating in the travel and leisure space — makes sense. The question, however, is whether the recent good news is now priced-in. 

I think it might be. Even if air travel does rebound in 2021 as the market expects it to, easyJet will still face the same level of competition for passengers it did before the coronavirus reared its ugly head.

In the meantime, there’s a truckload of debt on its balance sheet to sort out. Tellingly, directors aren’t among those buying the shares either. This suggests they aren’t wholly confident about recent gains sticking. 

There’s also Brexit to think about. As I type, Boris Johnson is on his way to Brussels in a last-ditch attempt to strike a deal with his EU counterparts. The fact that negotiations are even still continuing is arguably encouraging, but I certainly wouldn’t want to gamble my money on a positive outcome. Even if an agreement is reached, only the most optimistic of investors would presume there won’t be further hurdles ahead.

All told, I think the easyJet share price could still see some volatility in the near term. That’s why, right now, I’m buying the shares of a different FTSE 250 company: polymer provider Victrex (LSE: VCT)

“Significant headwinds” 

Like the Luton-based airline, the coronavirus hasn’t been kind to Victrex. Today’s full-year numbers give some indication of the damage done.      

Sales volumes and revenue declined 7% and 10% respectively over the 12 months to the end of September thanks to “significant Covid-19 headwinds in H2″ having a “material impact” on the business.

Unsurprisingly, this has filtered down to Victrex’s bottom line. Reported pre-tax profit tumbled to £63.5m — 39% lower than the previous year.

It doesn’t look like trading will bounce back soon either. Today, Victrex said that “overall performance remains subdued” thanks to end-markets such as Aerospace and Energy continuing to be weak.

Buying opportunity

Based on today’s muted reaction, it would seem that none of this is a surprise to the market.

In contrast to the easyJet share price, Victrex’s valuation was down slightly in early trading. This suggests to me that now might be time to load up. But I think there are other reasons to be optimistic.

For one, its finances look strong enough to withstand this problematic period. The FTSE 250 firm had £73.1m in cash at the end of the last financial year.

The reinstatement of dividends — a final payout of 46.14p per share will now be paid — is another positive. I doubt management would be making this decision unless it was confident about trading picking up in 2021.

Third, Victrex continues to invest in growth opportunities, including a new manufacturing facility in China. On top of this, you have the traditional hallmarks of a quality company: high margins, high returns on capital employed, and a market-leading position. 

The easyJet share price has done well over recent weeks but, like Terry Smith, I’m more interested in what happens to valuations over decades. Victrex remains a better buy-and-hold pick for me.

The post Forget the easyJet share price. I’m buying this FTSE 250 stock for the next bull market! appeared first on The Motley Fool UK.

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Paul Summers owns shares of Victrex. The Motley Fool UK has recommended Victrex. 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.

I think the way to do this is by diversifying my stockholdings. Companies most focused on the UK market can be impacted. I’d temper these purchases with internationally focused stocks, which will be hedged better. The following are five FTSE 100 picks that I think can Brexit- proof my portfolio:

#1. Ashtead: US infrastructure creation boost

The first of these, in order of name, is the FTSE 100 construction and equipment rental company Ashtead. It suffered a big blow earlier in the year, when its profit fell by 35% on the Covid-19 impact. 

However, things are looking up. Not only will we (hopefully) put Covid-19 behind us soon, public spending aimed at infrastructure creation is likely to get a boost in the US, as a stimulus to the economy. Ashtead garners 60% of its revenue from the US, which is anyway a positive. At the same time, it’s Brexit proofed as a result too. 

#2. Burberry: The China factor to cushion Brexit blow

The FTSE 100 luxury brand and retailer Burberry is another stock I like. It probably sounds contradictory that the classic British brand should be Brexit-proof. It turns out, though, that the retailer, best-known for its trench coats, has widespread international appeal.

More than 60% of its revenues are from outside of Europe. The Chinese have a particular fondness for Burberry. China’s growth has bounced back already, and will get better from here. I think this FTSE 100 stock will be stable, Brexit or not.  

#3. CRH: Also a US beneficiary

Much like Ashtead, the Irish construction giant CRH also has large US operations. It was my one FTSE 100 pick if Biden won the election. A democratic sweep, in particular, would have been particularly great for the stock. But even now, it’s poised to do well on recovery in the US. From the time I wrote about it, it’s already up 5%. 

#4. Rio Tinto: Benefiting from metals’ rally

The FTSE 100 multi-commodity miner Rio Tinto has benefited from the run-up in industrial metals’ prices. China’s public spending, in particular, has risen to stimulate the economy out of the Covid-19 funk. It got funneled into infrastructure expenditure, increasing metal demand and prices. The US could do the same next year, to some extent. Because of this, I think RIO is poised to do well despite Brexit.  

#5. Unilever: Brexit hedged

This massive consumer goods company gets the largest share of its revenue from Asia, followed by the Americas. After that comes Europe. I reckon that the UK — much like with the other companies on this list – is a relatively small part of this. As a result, Brexit blows will impact it little, even though it just became a London-headquartered company after some debate.  

The post 5 FTSE 100 stocks I’d buy to Brexit-proof my portfolio appeared first on The Motley Fool UK.

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Manika Premsingh owns shares of Burberry. The Motley Fool UK has recommended Burberry and Unilever. 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.

Could we get past 7,000 next month? History suggests it’s not out of the question. 

FTSE 100: Santa rally ahead?

December has earned itself a reputation for being the strongest month of the year for UK share prices. In fact, research by Stephen Eckett (and published in Harriman’s Stock Market Almanac) has shown that the FTSE 100 index has fallen just three times in the month since 1995. It even has a habit of outperforming the US S&P500!

Interestingly, there doesn’t appear to be one clear reason for this. What we do know however, is that the final two weeks of December tend to be particularly strong.

Known as the ‘Santa Rally’, here’s why I think this may happen again in 2020.

Why 7,000 might be broken

It seems logical that further good news on coronavirus vaccines could push the FTSE 100 higher. Having received positive results from Pfizer, Moderna and AstraZeneca in the past few weeks, it’s now the job of the Medicines and Healthcare products Regulatory Agency (MHRA) to give its approval. Expect fireworks if we get this in December.

The psychological effect of emerging from lockdown restrictions shouldn’t be underestimated either. While many UK businesses will continue to struggle, the mere belief that things are improving could send share prices higher on its own. Remember — the market is more interested in what will happen next, not what’s happening now.

Despite recent gains, UK shares also remain cheap relative to elsewhere in the world. News of a Brexit trade deal would undoubtedly go some way to addressing this. Further monetary stimulus in the US would be another boost.

On the other hand…

Of course, there’s also no shortage of reasons for why the FTSE 100 will fail to break through the 7,000 barrier.

Aside from the possibility of unexpected hurdles for the aforementioned vaccines, there are fears that coronavirus infection rates could rise as a result of families being allowed to meet over Christmas. This ‘two steps forward, one step back’ state of affairs could slow momentum.

With chancellor Rishi Sunak warning that the full economic impact of the pandemic has only just begun, many in the UK may also be inclined to keep their purse strings tightened until 2021. That’s problematic when you consider how dependent most of the UK’s listed retailers — and their share prices — are on the festive period for sales.

In addition to all this, many traders may begin to bank whatever profits they’ve managed to make in 2020. 

Don’t time the market

It is, of course, impossible to say for sure where the FTSE 100 will be at the end of next month. As such, my investment strategy remains the same. Like top UK fund manager Terry Smith, I’m looking for top-quality companies trading on reasonable valuations that I can hold for years. 

After a rollercoaster 2020, a soaring FTSE 100 would be a nice Christmas present for UK investors. Just don’t bank on it. 

The post Here’s why I think the FTSE 100 could smash through 7,000 in December appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

US stocks go electric

Thanks to its forthcoming inclusion in the S&P 500 index, it’s no revelation that electric car maker Tesla makes the list.

Having now posted more than the four profitable quarters required to make it eligible, Elon Musk’s California-based giant gets its promotion on December 1. Institutions operating index-tracking funds will be obliged to buy the stock. And canny investors know that. This should push the share price higher, at least for a while.  

But UK investors’ desire for electric vehicle stocks goes beyond Tesla. Manufacturers Nio and Workhorse make the list of the most popular buys, as do US-listed Chinese equivalents Xpeng (or Ziaopeng Motors) and Li Auto. Interestingly, Canadian car designer ElectraMeccanica was the most popular stock traded by UK investors over the past week. 

Alternative power

Another in-favour share has been Plug Power. The $11bn cap makes hydrogen fuel cell systems that replace conventional batteries in vehicles such as trucks and equipment used in warehouses. Its shares have climbed an incredible 700% in 2020 alone.

A second popular alternative power buy in the last seven days has been FuelCell Energy. It designs, manufactures, operates and services fuel cell power plants.

With the push to green energy sources likely to play a significant role in Joe Biden’s presidency, it’s understandable that UK investors should gravitate to companies like these.

Also in the mix

The remaining two stocks in the Top 10 list offer a bit more variety.

Small-cap biotechnology firm Vaxart is currently developing a coronavirus vaccine that can be administered orally. Assuming it’s clinically effective, a big positive is that it won’t require cold storage, making the vaccine relatively easy to distribute. Vaxart may be running behind other candidates on results, but that doesn’t seem to be deterring UK investors from buying. 

The final share that made the list in the last seven days was GoPro — the leading manufacturer of action cameras and video-editing software. 

Should I buy?

Here at the Fool UK, we’re not the sort to buy shares in companies just because they’re popular. Sentiment can turn quickly. So any strategy based purely on momentum is inherently risky. Moreover, the valuations attached to some US stocks now look crazy. Tesla is a prime example.

This is not to say we think owning shares in businesses listed overseas is a bad idea. Quite the opposite, in fact. Diversifying a portfolio to include these stocks can help protect UK-based investors from events closer to home.

It can also lead to better returns. While US markets have soared since markets crashed in March, the FTSE All-Share is still down around 15% in 2020. Buying London-listed firms feels safe, but this ‘home bias’ can prove a drag on profits.

Lastly, it’s a fact that most of the major players in ‘megatrends’ such as the move towards automation, healthcare innovation and, yes, electric cars, are listed overseas. As a long-term investor, I think getting some exposure is vital.

The post The top 10 most traded US stocks on Stake by UK investors in the past week appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Personally, I’d be more inclined to gravitate towards other UK stocks at the current time, particularly those lower down the market spectrum. Here’s why.

The trouble with Rolls-Royce shares

The problem with buying shares in a battered company like Rolls-Royce is two-fold.

First, you have to remember who your competition is. Here at the Fool UK, we encourage people to see investment as a long-term endeavour. Unfortunately, a lot of people aren’t capable of being patient. Look at the recent volatility in cinema chain Cineworld as an example of this. Thanks to day traders, I think Rolls-Royce shares could lurch up and down for a while.

Second, it needs to be remembered that people are buying shares in a business that was hardly firing on all cylinders before coronavirus reared its ugly head. Even with Covid-19 gone, there’s no guarantee Rolls-Royce will then thrive.

This isn’t to say investing now won’t work out well. News of a vaccine could turbocharge all UK share prices. Then again, no one should approach the £5bn-cap without appreciating the myriad of challenges it faces.

Taking this into account, I’m finding it difficult to muster any enthusiasm to buy Rolls-Royce shares right now. For me, there are better opportunities available elsewhere in the market. This is especially true in the small-cap space.

Top manager pulls IPO

Yesterday, it was announced the Buffettology Small Companies Investment Trust wouldn’t be listing on the market, having been unable to raise the £100m fund manager Keith Ashworth-Lord was looking for.

This news is significant because Ashworth-Lord is arguably one of the UK’s best stockpickers. Had one invested in his CFP SDL UK Buffettology Fund when it launched in 2011, that money would have grown by a little over 230%, according to its latest factsheet. The sector average? Just 59%! He certainly didn’t achieve this owning Rolls-Royce shares.

The shelving of the IPO suggests the UK market is utterly unloved at the moment. This is, to an extent, understandable. With Covid-19 infection rates rising, talk of another national lockdown in England won’t go away. Should further travel restrictions be put in place, it’ll be time for investors to hide behind their sofas. There’s also Brexit to ponder.

Nevertheless, this is exactly why I think now is a once-in-a-lifetime chance to buy UK small-cap stocks!

Go small

Unlike Rolls-Royce, many UK-listed minnows possess robust balance sheets with minimal/no debt. Many also operate in far more defensive sectors than the FTSE 100 engineering firm. Fewer working parts also allow small-caps to be far more nimble in grabbing market opportunities. Most importantly, small-cap shares have been shown to massively outperform the giants over the long term.

As investors, we’re taught to buy ‘when there’s blood on the streets‘. While this can be a path to riches, I’d argue it’s still very dependent on which ‘street’ you select.

For me, now’s the time to buy small-cap UK stocks with quality characteristics and solid outlooks. I’ll leave Rolls-Royce shares to the traders. 

The post Forget Rolls-Royce. I think this is a once-in-a-lifetime chance to get rich from UK small-cap shares! appeared first on The Motley Fool UK.

More reading

• Get ready for Rolls-Royce shares’ next move higher
• £10,000 invested in Rolls-Royce shares at the start of the year is now worth…
• How did Rolls-Royce shares add £5bn in market cap in one day?
• Why did the Rolls-Royce share price open down 5.5% this week?
• Will Rolls-Royce shares soar to £17.40 or sink to 900p?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.