If I had £3,000 to invest, I’d target what I believe to be the best shares to buy now. These are the companies I think will see the most considerable uptick in operational performance as we move on from the pandemic.
However, these aren’t pandemic recovery stocks. I think some of the best shares to buy now are companies that have performed well throughout the pandemic and will continue to do so.
Some of the best shares to buy now
A great example is the specialist international distribution and services group Bunzl. The company’s sales held up relatively well last year, and it’s now rebounding as the economy reopens.
For the six months to the end of June, revenue is expected to be 6% higher than 2019 levels. It’s also spent £114m during the first half acquiring smaller companies to boost its growth, a strategy it’s successfully deployed for over a decade.
Halma is another stock I’d buy. This international group owns a portfolio of life-saving technology companies. As safety never takes a day off, demand for its services has continued throughout the pandemic.
And, like Bunzl, Halma is an acquisitive company. It’s always tinkering with its portfolio of businesses, searching for the next opportunity. Management’s looking for enterprises that meet its profitability target, an 18-22% return on sales.
It recently spent just under £49m on three acquisitions meeting this target. It also divested Texecom for a total cash consideration of £65m after acquiring it for £26m in 2005.
Although both Bunzl and Halma have successfully executed their mergers and acquisitions strategy in the past, there’s no guarantee this will continue. The risk of using this strategy is that one company may end up paying too much for a deal, or overextending itself.
Acquisitions may also fit poorly with the rest of the group. This could lead to losses and possible writedowns, which would impact overall profitability.
Distribution giant
The two companies above feature on my list of the best shares to buy now because they’re growth champions. Distribution group DCC also seems to meet all of my acquisition criteria. Distribution is a low margin, high volume business.
DCC has managed to grab a large share of the market in the UK and Ireland by growing quickly through acquisitions. Size has helped the company achieve economies of scale, particularly in markets such as pharmaceuticals and fuel.
The company has managed to make its way into the FTSE 100 by using this strategy. And I think it can continue to grow.
Still, despite its potential, the company is exposed to the same risks as Bunzl and Halma. It could end up over expanding, or if revenues suddenly drop, thin profit margins may evaporate.
Even after taking these risks into account, the stock still features on my list of the best shares to buy now. I’d buy it for my portfolio today as the economy recovers.