Where would I start investing today? I’d look for UK stocks with a good mix of growth potential and income.
In this piece I’m going to look at two companies that I think fit the bill. Both have well-respected management and look decent value to me at the moment.
A takeover target?
My first pick is FTSE 100 television group ITV (LSE: ITV). This is a stock I already own. What attracts me is the company’s twin role as a broadcaster and as a producer for other television companies. I’m also keen on the company’s massive programme archive, which I believe would be valuable to a potential buyer.
Historically, ITV has been highly profitable, although profit margins have fallen over the last five years. However, the company is in turnaround mode under CEO Carolyn McCall. Profits are expected to bounce back this year from the disruption caused by the pandemic, with further growth expected in 2022.
Debt levels remain comfortable, in my view, and the company’s cash generation still looks healthy. Although the shares have risen by 64% over the last year, that gain was from a low level. Even at the current share price, ITV shares still trade on just 11 times forecast earnings, with a dividend yield of 4%.
ITV remains a buy for me, and I expect my shares to provide a good mix of income and growth from current levels. I also think that this UK stock could be a potential takeover target. In my view, ITV’s big market share and content assets could make it attractive to a larger media or telecoms group.
This UK stock is best-in-class
Housebuilders have been stunning investments over the last decade, but after such a strong run I think it’s more important than ever to be selective. My top pick from this sector at the moment is FTSE 100 firm Berkeley Group Holdings (LSE: BKG).
Berkeley is the only housebuilder I’d really be happy to hold if the housing market crashed. The reason for this is that the company has shown great judgement in preparing for previous crashes and taking advantage of them, without needing shareholder bailouts.
We can see how well this has worked by looking at Berkeley’s share price, which has risen by 400% since June 2006. That’s more than double the gain delivered by the next-best FTSE 100 housebuilder.
Of course, past performance is no guarantee of future gains. Berkeley stock has risen by less than 5% over the last 12 months, lagging the wider sector.
One possible risk is that the company will have to face the next housing crash without guidance from founder Tony Pidgley, who died in June 2020. Pidgley’s judgement of the housing market was widely seen as a key contributor to the company’s consistent success.
The good news is that there’s no sign of any change in Berkeley’s performance just yet. The firm’s latest results show that pre-tax profit rose by 2.9% to £518m during the year to 30 April. Net cash was stable at £1.1bn, while forward sales totalled £1,712m, only slightly lower than before the pandemic.
At current levels, Berkeley shares are trading at around 14 times forecast earnings, with a 3.4% dividend yield. I’d be comfortable buying at this level for a long-term portfolio, given the company’s strong track record.