I think there are plenty of top UK shares on the market that are undervalued right now.
Today, I’m going to take a look at just five of my favourites.
My five best UK shares to buy
Since the beginning of the year, UK bank shares have plunged in value. I think this reflects investor uncertainty towards the UK banking sector in general. However, in my opinion, this is unwarranted. Yes, UK banks do face a range of risks at present. Brexit and the pandemic are two significant risks to profitability.
Nonetheless, these lenders are all well-capitalised, and the fallout of the pandemic hasn’t been as bad as expected.
I reckon this bodes well for future growth. These banks, such as NatWest Group, Barclays and Lloyds, now have vast amounts of capital on their balance sheets. As they’ve been prevented from paying this income out to investors as dividends by regulators, they’ve nothing to do but hold onto the cash.
This could change in 2021. Regulators at the Bank of England are considering removing the dividend restrictions. And when they do, investors could be in line for huge payouts.
To give an example, City analysts are speculating NatWest could return as much as £7bn to shareholders without breaching its capital requirements. The company’s current market capitalisation is around £20bn. That suggests the stock could payout 35% of its market value in dividends next year.
Lloyds and Barclays are in similar favourable positions. As such, I think these are some of the best UK shares to buy right now. Their income potential is second to none. And sentiment towards the lenders remains depressed, presenting a good opportunity for long-term holders, in my opinion.
Growth potential
I think investor sentiment towards many UK shares is unduly depressed at present. Companies like Unilever and Croda are global leaders in their respective fields. Nevertheless, they currently trade at discounts to their international peers.
Once again, I reckon this presents an opportunity for long-term investors. These companies have large international footprints and own the rights to valuable technology and brands. These competitive advantages should help them prosper in the long run.
With that in mind, I reckon investors could benefit from buying shares in these firms while they trade at low levels. Unilever and Croda should be able to use their advantages to drive growth in the long run, and rising earnings should push their share prices higher. In the meantime, both companies offer investors a dividend yield of between 2% to 3.5%.
These qualities are the reasons why I consider Croda and Unilver to be some of the best UK shares to buy right now. No matter what the future holds for the UK economy in the short term, over the next 10-20 years, I reckon these stocks will produce positive returns for shareholders.