At the start of each month I’m always on the look out for fresh opportunities. Last month was a tale of two halves. The FTSE 100 index started off strongly, but ultimately ended the month down around 2.5%. For February, when trying to answer the question of which UK shares should I buy now, I want to be conservative. There’s plenty of risks out there at the moment, so I want to try and protect myself as much as possible.
Buying defensive stocks
Defensive stocks typically outperform growth stocks during a period of uncertainty. At the moment, fresh travel restrictions and Covid-19 variants are stunting positivity. There is optimism around the roll-out of the vaccines, and this is definitely something to be positive about. But on balance, the news is more negative than positive right now.
The first UK share I could buy now is J Sainsbury. The supermarket firmly sits in the defensive category, providing all the necessities consumers want. As such, demand should remain stable during this period. Interim results for 2020/21 show this, with retail sales up 7.1%. The pandemic hasn’t prevented people from buying from the company, in fact online sales were up 117%. This gives me confidence in buying the stock as it shows me the business can cope during difficult times in the broader economy.
The business could struggle from the Brexit fallout, with it commenting last November that distribution to Northern Ireland could be affected. This point does worry me and is a point to keep an eye on.
The second UK share I could buy now is Kingfisher. The business owns brands such as B&Q and Screwfix. Despite the FTSE 100 falling in the past month, Kingfisher is one of the few stocks in the index that saw a rise. The share price was up 2.17%. This doesn’t sound much, but it’s an outperformance of 4.6% versus the FTSE 100 average.
Rising demand from people wanting to do lockdown DIY projects, along with steady demand from tradespeople, have helped Kingfisher recently. I think the business needs to be careful about the DIY fad dying out later this year as lockdown eases.
Are there any UK shares I wouldn’t buy now?
Personally, I wouldn’t look to buy Argo Blockchain at the moment. The cryptocurrency mining business has seen the share price increase 10-fold over the past three months. It’s a growth stock by any measure, and I don’t think now is the right time to be heavily invested in growth stocks. Speculative investors have pumped various stocks up in recent weeks, often beyond their fundamental value. I think this is the case for Argo, as I flagged up last month. It’s got a market capitalisation of over £300m when half-year earnings came in at only £3.23m. Doubling this for the full-year puts the market capitalisation at around 50 times earnings.
I could be wrong, and Argo could continue to rally based on future projections of earnings and growth. I could also be wrong about looking for defensive stocks at the moment. Risk sentiment could change quickly to something more positive. In that case, growth stocks would likely offer higher returns than my choices. Personally, I don’t think this will be the case.