Sometimes the best UK shares are those that have performed strongly during the past year. I like to find good-quality shares where the fundamental factors remain strong but the share price has recently drifted down.
Best UK shares on sale
One of the best UK shares I’d buy this March is Games Workshop (LSE:GAW). I selected it as one of the top five growth stocks I’d buy in 2021. It continues to impress with consistent and positive trading updates. Business seems to be going well, and the lockdowns show rising demand for its fantasy miniatures.
In its most recent update for the six months ended 29 November, this FTSE 250 wargames manufacturer reported a pretax profit of £91.6m, up 56% from £58.6m the year before. Online sales rose sharply by 87%, which is consistent with the trend of many online businesses in 2020.
Even before lockdowns, sales and earnings were growing well. The business has shown great resilience over the past year and continues to demonstrate its high-quality metrics. For instance, one measure of business quality is return on capital employed (ROCE). For Games Workshop, ROCE is over 50%, which is very good, in my opinion.
No business is without risk, and Games Workshop will need to ensure it can successfully adapt its online selling strategy and manufacturing capacity as the company continues its growth trajectory. In addition, retail remains challenging. Extended lockdowns could potentially harm future growth from new customers, as the best way to start the hobby is with visits to the bricks-and-mortar shops.
After an 84% increase in 2020, Games Workshop’s share price has drifted lower so far this year. My view is that this is an excellent opportunity to buy one of the best UK shares in the FTSE 250.
Technology stocks drift lower
Another investment that performed exceptionally in 2020 but has recently drifted lower is Scottish Mortgage Investment Trust (LSE:SMT). Lockdowns propelled technology stocks higher in 2020, and this technology-focused fund benefited.
Overall, it became one of the best UK shares in my portfolio, rising 110% in 2020. Much of the performance came from its investments in electric vehicle companies, Tesla and Nio. Their share prices gained 743% and 1,110% respectively.
Despite strong performance, risks should be closely watched. In the second half of February 2021, technology shares drifted lower. The prospect of a large U.S. fiscal support package, vaccine progress, and signs of upcoming economic recovery created concerns of elevated inflation. US bond yields jumped higher, which helped to cause many technology stocks to sell-off.
High-growth technology stocks are particularly sensitive to changes in bond yields and interest rates. If inflation risks persist, and bond yields continue to rise, this could be a risk for the Scottish Mortgage Investment Trust investment case.
Federal Reserve Chair Jerome Powell has consistently tried to reassure the market that interest rates will not be rising for the foreseeable future. With further speeches coming soon, any indications regarding future interest rates from the Federal Reserve will be watched closely.
Despite risks of further short-term stock market turbulence in the technology sector, the long-term investment case for SMT remains strong. It holds innovative and growing global companies with expanding end markets. I believe it’s also an excellent and cost-effective way to gain exposure to global technology giants.