UK shares have underperformed global stock markets lately, but I reckon that’s about to change. The Brexit deal should end years of uncertainty (whatever else you may think of it). The Oxford University/AstraZeneca vaccine has just been approved, offering a ray of light at the end of the pandemic tunnel.
We’re not out of the woods yet, of course. The latest lockdown may last until March. And if recent history is a guide, that deadline might prove optimistic. The next few months could be bumpy for UK shares, but I would still buy them today.
History shows the best time to invest is when sentiment is low and prices are down. Then you just have to be patient and hold on for the recovery. With that in mind, I’d buy two of my favourite FTSE 100 stocks today.
The stock market rally will come
One of the reasons why the FTSE 100 underperformed last year is its outsize exposure to two sectors hit hard by the pandemic – banks and big oil. I’m betting UK shares in both sectors will make a comeback in 2021. First, I’d buy Royal Dutch Shell (LSE: RDSB) to play the oil price resurgence, despite a long-term question mark over fossil fuels.
Clean energy is booming, and the cost of wind and solar are falling all the time, a trend I expect to continue. Hydrogen poses another threat to big oil. However, the crude fact is the world still runs on the black stuff. We’ll see that once the pandemic eases and people start travelling again.
Brent crude is above $50 a barrel, and I’m banking on these revenues funding Shell’s transition to a net zero carbon world. Valued at a bargain price of 8.7 times earnings with a forward yield of 4.1%, I think there’s a strong buying opportunity here.
I’d buy these 2 UK shares
The big banks have also taken a hammering. Lloyds Banking Group (LSE: LLOY) now trades at just 34p, roughly half its price a year ago. Last month, it posted a third-quarter profit, but that was overshadowed by a first-half loss caused by bad debt provisions. Markets were disappointed, but this created a buying opportunity for more far-sighted investors.
Lloyds is the UK’s biggest retail bank, and has been hit hard by the country’s economic struggles. When the economy finds its footing again, it should reap the benefit. Today’s low share price leaves it trading at just 10.1 times earnings, also a bargain price.
It doesn’t pay a dividend right now, but that should soon change as the Bank of England has given banks the green light to resume shareholder payouts. I’d buy both these UK shares with the aim of holding them for 10 years or more, to benefit from dividend income and share price growth.
Most of the bad news has been priced in, judging by the valuations of these two UK shares. I don’t think the good news has though.