If I had to invest a lump sum of £500 in UK shares today, I’d target two different types of stock.
On the one hand, I’d pick a high-quality business, a company with high profit margins that should continue to prosper, no matter what the future holds for the UK economy.
Meanwhile, on the other hand, I’d buy a recovery stock. This could be a company with a bit of an uncertain future, which can generate high returns if the UK economy grows rapidly over the next few years.
I’d also add a third business to my basket of UK shares. This company would have a mix of the two qualities outlined above. I think this combination of quality and recovery stocks could be the best way to invest £500.
UK shares to buy
The high-quality enterprise I’d buy for my portfolio of UK shares is AstraZeneca. I think this company has all the hallmarks of a business that can grow year after year. Healthcare is an incredibly stable industry because there’ll always be a growing need for healthcare and related services.
As one of the largest pharmaceutical companies in the world, Astra has a considerable competitive advantage in its existing product portfolio and research and development pipeline.
Of course, there’ll always be a risk that the company’s research efforts don’t yield results. The pharmaceutical sector is also fiercely competitive. These are the key obstacles facing the enterprise.
The recovery stock I’d buy for my £500 portfolio is Landsec. This landlord has suffered from falling property prices and low levels of rent collection over the past year. The pandemic may also have lasting effects on the firm’s office properties if there’s a significant shift towards working from home.
That’s the most considerable risk the business faces today. Still, I’d buy the stock as a recovery play because its portfolio of properties can always be re-purposed. In addition, it owns some valuable real estate in London, which might have suffered a drop in value over the past 12 months but is unlikely to remain cheap for long, in my opinion.
The best of both worlds
The final share I’d buy for my portfolio of UK shares is Lloyds Bank. I think this stock offers the best of both worlds. As the economy recovers, I believe the firm’s earnings should improve, thanks to higher lending levels. At the same time, as one of the UK’s largest banks, there’ll always be a demand for the lender’s services.
I think these qualities suggest the stock is both a recovery and defensive investment. The group’s main challenge at the moment is low interest rates. Low rates are compressing profit margins, and if they drop further, Lloyds’ profits will drop further as well.