The UK is home to many great businesses and buying shares in ones with good business models and prospects for growth can be a great way to boost savings in an Isa or Sipp.
Markets have been rocky this year because of Brexit and trouble overseas, but we asked the best fund managers for examples of solid UK companies whose shares could do well in years to come.
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Buy-to-let isn’t the only way to invest in property. Shares in UK house building companies have done well in recent years, and in terms of the companies’ profits, several have been beating analysts’ expectations of their earnings. Barratt Developments, Bellway and Taylor Wimpey are three, says Blake Crawford of JP Morgan.
“Many investors may have overlooked the benefits being reaped from the development land they currently have on their books, which was bought cheaply following the financial crisis,” he says.
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The climate is favourable for house builders – mostly because of the housing crisis, and the government’s initiatives to tackle it have acted as supports to their customers, home buyers. Few industries have such a clamour for their product as house builders.
These stocks are also good for dividend income. “Returning cash to shareholders has been a key theme in the industry, a trend we expect to continue,” Crawford says.
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Times have been tough on the high street but one company which has been popular with investors is WH Smith. Although it has had trouble with falling sales at its regular stores, interestingly the trend for adult colouring books has helped reverse this.
Their outlets at travel hubs for buying newspapers on the hoof are doing well too. “Perception does not reflect reality when it comes to WH Smith and the overall strength of its business,” says Crawford.
“The reality is that their travel business is thriving, with outlets at train stations and airports and stores opening in a number of new locations. It’s bolstered by increased air and rail travel as the economy has picked up and employment figures are at record highs.”
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Austerity in the Western world means governments have slashed their spending on defence in recent years. But they have tended to cut back on traditional military wares, such as aircraft carriers and fighter jets. More modern areas of defence such as cyber security, surveillance and electronic warfare are growing in importance.
“Governments now recognise the need to reposition their defence assets to deal with the changing nature of security threats,” says Alex Wright of Fidelity International. He says military spending is likely to rise as global geopolitical uncertainty increases.
Wright highlights Ultra Electronics as a leader in modern defence and it also has operations in underwater weapons, military communications and nuclear operations.
Since defence companies typically benefit from long contracts and spending commitments from governments, they can have predictable revenues and growth prospects.
“The company’s acquisitive history has made it more complex than other businesses of similar market capitalisation, putting off many analysts and investors. But it is enacting a plan to simplify its structure, which should make it easier for the market to understand, as well as having operational benefits,” Wright says.
“Earnings had been dependent on the advertising cycle up until about four to five years ago when management changed tack,” says Crawford. The revenues from selling these shows overseas tend to be quite robust as foreign companies come back to buy follow-up seasons of the same programme.
“ITV have a number of successful shows that they can sell-on to various channels globally and they have a strong track record of doing so,” he adds. ITV shares have risen considerably in recent years but Crawford believes there’s more to come for shareholders.