If I had £5,000 to invest today, there are two UK shares I’d buy. I think both of these companies have tremendous long-term potential, both in terms of growth and income.
UK shares to buy
The first company I’d buy is the asset management group Impax Asset Management (LSE: IPX). Impax is a specialist investment manager, targeting opportunities arising from the transition to a more sustainable global economy. This section of the investment market is booming, and I think it will continue to do so, particularly for firms like Impax.
Investors want to know what their money is backing more and more, and some asset managers can’t provide the level of information required. Others don’t offer any advice at all, and some have provided misleading information.
Impax has a strong reputation for providing balanced guidance and, at a time when there’s so much misinformation across the sector, the business has benefited. On 31 December 2020, assets under management totalled £25.2bn, up 25% quarter-on-quarter. This was a new record high for the group.
I think this trend could continue, and that’s why I’d buy the stock as part of a portfolio of UK shares today. Of course, there’s no guarantee Impax’s assets under management will continue to increase.
If its reputation takes a hit, investors may quickly withdraw funds. This could become a problem for the group. Other challenges the corporation may face include higher costs due to an increased regulatory burden. Staffing costs may also increase as competition in the responsible investing space heats up.
All of these challenges could hit the company’s bottom line. And if the bottom line does come under pressure, Impax may have to cut its dividend. The stock currently supports a dividend yield of 1.9% based on City forecasts, which are always subject to revisions.
Cloud communications
The demand for cloud computing services has hastened over the past 12 months. The pandemic has accelerated a trend that was already in place. This has led to windfall profits for companies like Gamma Communications (LSE: GAMA).
According to current analysts’ projections, the company could report a 33% increase in profits for 2020. These are just projections at this stage and are by no means guaranteed.
Still, as a way to invest in the booming cloud computing market, I’d back Gamma. It’s one of the few UK shares that offer exposure to this sector. The company has a cash-rich balance sheet, which will help fund expansion. It also pays investors a small dividend, a yield that’s expected to hit 0.8% for 2020. This might be small, but only a handful of cloud computing stocks offer investors a regular income.
I think Gamma has a bright future, but we can’t overlook the company’s risks. Cloud computing, and technology in general, is a viciously competitive sector. The group is only small (with a market capitalisation of £1.5bn) compared to some of its American peers. If they wanted to, Gamma’s American peers could crush the business. That’s the most significant risk the firm faces at present, and it’s something I’ll be keeping a close eye on going forward.
Nevertheless, considering the company’s growth potential and modest dividend yield, I’d buy the stock for my portfolio of UK shares today.