Compared to some other international stock markets, the UK’s endured a poor 2020. For example, in the US stocks have been roaring upwards.
However, the success of Britain’s vaccine rollout programme makes the UK look like a good place to invest right now. The pound sterling has been rising higher when measured against other currencies such as the US dollar and the euro. And I think those currency moves reflect optimism about the UK’s potential for a sharp economic recovery this year.
I’d aim to buy the best FTSE shares
Meanwhile, many of Britain’s businesses occupy cyclical sectors that look well-placed to recover. But I wouldn’t invest just in those. The London market has many top-notch businesses doing well, both at home and abroad. I’d seek to build a diversified portfolio featuring cyclical recovery plays alongside high-flying businesses that perhaps attract higher valuations.
I’d aim to diversify by investment style, sector and market capitalisation. But I reckon there’s a good chance the UK’s businesses will have a good year as 2021 unfolds. And I’m keen to back that conviction by investing in some of the best FTSE shares on offer.
For example, housebuilder Persimmon could trade well through 2021. City analysts expect a robust single-digit percentage increase in earnings and the firm has been throwing out chunky shareholder dividends. The fundamentals of the sector look appealing to me. However, house prices look high. And any correction downwards could derail an investment in Persimmon.
I’m keen on the ongoing recovery and growth potential at Premier Foods. The company owns many well-loved British food brands, such as Mr Kipling, Ambrosia, Batchelors, Homepride, Mc Dougall’s, OXO, Paxo and others. And, in January, the firm reported “another exceptional quarter of trading” as it continues to refresh its brands and turn the business around.
But the pandemic has arguably created an unsustainable level of demand for home food. As we emerge from lockdowns, sales could decline for Premier Foods and my investment may suffer.
Building back from the pandemic
Meanwhile, SThree is a London-listed international staffing company. As the world rebuilds after the pandemic, I can imagine companies adding to their staff numbers and calling on the services of SThree. And City analysts have pencilled in some decent advances in earnings ahead.
But the big risk for any investment is that economic recovery is delayed further by the pandemic. In such a scenario, those earning advances may not materialise and the share price could fall.
I reckon Luceco has the potential to keep growing its earnings in the years ahead. The company makes and distributes wiring accessories, LED lighting, and portable power products. However, demand has been elevated while consumers spent more time and money at home during the lockdowns. As lockdowns ease, some of that demand could fall, but the wider ramp-up of general economic activity may offset that.
I think the risks are balanced and I’d aim to overcome any short-term investment setback by holding my shares for the long term.