Some of the best UK shares I’m considering this February are those that performed well in 2020 but whose share prices have drifted lower in January. In addition, I am only looking for good quality companies that show earnings growth, solid return metrics, and strong balance sheets.
Short-term lower prices could be an opportunity to buy some of the best UK shares at a discount. Share prices can move around for so many different reasons, and sometimes, fundamentally strong companies can be available to buy on sale.
Of course I could be wrong and it could be the start of a deeper correction. But by focusing on good quality companies, that are performing well and run by competent management, I feel comfortable taking that risk.
Best UK shares on sale
One company I’m looking at this February is Flutter Entertainment (LSE: FLTR). If the name doesn’t sound familiar, it used to be called Paddy Power Betfair. This £25bn FTSE 100 online betting company has grown significantly over the past decade. It also owns FanDuel, PokerStars, and FOX Bet in the US.
The UK has relatively relaxed online gambling laws, in my opinion. In contrast, in the US, several states are only just opening up their markets to this burgeoning sector. This is where I think the opportunity is for Flutter Entertainment (and others in the industry). The UK gambling sector offers some of the best UK shares right now, in my opinion.
Several US states recently legalised online sports betting and additional states are moving towards legislation. The pandemic also accelerated demand for online betting options and I reckon this trend could continue.
Flutter Entertainment’s share price increased by 64% last year, but has pulled back and drifted lower over the past month. I can’t see any particular major reason for this, so I look at it as a possible buying opportunity for my Stocks and Shares ISA.
With a price-to-earnings ratio (P/E ratio) of 40, Flutter shares might look expensive to some. But with revenues growing at 25% per year, I will take a further look.
Volatile markets
Many new investors started investing in stocks and shares in 2020. Some reasons for this include volatile markets, and millions of people being stuck at home. There was also a greater desire to capitalise on rapidly rising share prices in several popular technology stocks.
New investors and volatile markets helped online trading services provider IG Group (LSE: IGG). It recently reported a “record” performance in its first half, seeing profit more than double on a year ago. Trading revenue surged 67% and active clients rose 55% in the six months to 30 November. In addition, IG Group unveiled its $1bn acquisition of tastytrade, a US-based online brokerage. This could help further diversify the business into higher growth US markets.
The IG group share price rose by 24% in 2020, but has retreated by nearly 10% over the past month. I think this could be an opportunity for me to buy one of the best UK shares around.
I consider IG group to have high-quality metrics. For instance, it has a return on capital of nearly 40%, an operating margin of over 50%, and an undemanding P/E ratio of under 13. I could even add this to my income portfolio as it offers a near 6% dividend yield.
I believe the downsides include a possible normalisation in financial market volatility, or a stabilisation in the macro environment.