The UK economy is currently one of the fastest growing economies in the developed world. And, with interest rates set to stay low over the medium term (and rise at a slow pace thereafter), the outlook for consumer-focused stocks appears to be very bright. In addition, inflation is currently zero, which means that wage rises are ahead of it and this should provide UK consumers with greater purchasing power. As such, buying shares in these five UK-focused companies could be a great move.
BT
Although risky, BT’s (LSE: BT-A) move into quad play looks set to provide it with an enhanced earnings growth profile over the medium term. Certainly, the industry will become much more competitive in future, but BT could benefit from being the first of the larger operators to offer quad play services to a wide audience in the UK. And, while a rights issue may be in the pipeline, investor sentiment is likely to improve once the deal starts to positively impact the company’s bottom line.
Furthermore, with UK consumers transitioning at a brisk pace to superfast broadband and upgrading their pay-tv offerings, BT’s price to earnings (P/E) ratio of 14.5 continues to have considerable appeal.
Persimmon
A low interest rate will clearly be great news for house builders such as Persimmon (LSE: PSN). That’s because it means that the housing market is likely to remain fairly robust and should allow the company to deliver on its hugely upbeat forecasts.
For example, Persimmon is expected to increase its bottom line by 17% this year, and by 13% next year. With a P/E ratio of 11.4, this puts it on a price to earnings growth (PEG) ratio of just 0.7, which indicates that its share price could move significantly higher – especially if the UK economy continues to go from strength to strength.
Debenhams
While the UK high street was under severe pressure just a few years ago, today it is a very different story. As well as greater spending power, UK consumers are also now much more confident and optimistic regarding their personal finances, and are returning to higher price point stores after years of ‘no-frills’ shopping.
As such, one company that looks set to benefit is Debenhams (LSE: DEB). It has been squeezed in recent years, as many of its core customers have been lost to discount stores but, with the outlook being much brighter, a reversal could take place in 2015 and beyond. And, with Debenhams having a P/E ratio of just 10.5, it offers great value, too.
Next
While Debenhams has struggled, Next (LSE: NXT) has gone from strength to strength. For example, it has increased earnings at an average rate of 17% per annum during the last five years which, given the difficult trading conditions of the period, is a hugely impressive result.
Clearly, Next’s P/E ratio of 16.4 is rather high, but the quality of the company’s management team, its medium to long term outlook, and the relatively high levels of customer loyalty mean that it could be a surprisingly strong performer. That’s especially the case since investor sentiment in the company has improved so as to push its share price up by a whopping 222% over the last five years.
Dixons Carphone
The merger of Dixons and Carphone Warehouse to create Dixons Carphone (LSE: DC) was an astute move, since it offers a significant amount of synergies and also positions the company as a market leader in the ‘internet of things’. And, over the medium to long term, this could be a key growth area for the UK economy, since the popularity of smart appliances around the home is set to increase substantially.
Furthermore, Dixons Carphone has excellent shorter-term prospects, too. For example, it is expected to increase earnings by 22% next year, and by 10% the year after. This makes its current P/E ratio of 15.1 seem very reasonable, and provides it with the scope to deliver capital gains moving forward.