The stock market can go through long periods when little happens, then suddenly become frenzied. The past couple of years have certainly been lively. As uncertainty looms over the economy, I have been considering what shares to buy now for my portfolio that I think have good long-term prospects.
If I had £1,000 to invest right now, here is how I would invest it evenly across two growth shares and a couple of income picks.
Growth options
The decline in the boohoo share price over the past year has seen the shares shed 78% of their value in that time frame. The shares had started to regain ground lately but have been heading downwards again in recent days.
I do see risks to profits from input cost inflation and higher shipping costs. But the company has been growing revenues at a fast pace and has had a consistently profitable business over the past few years. Upcoming annual results may cast last year’s profitability in a bleaker light. But in the long term, I expect the online retailer to keep expanding its customer base. That should be good for profits. I see the boohoo share price fall as a buying opportunity for my portfolio.
The second growth choice for my portfolio is homeware retailer Dunelm. It has lost 33% of its value in the past year and hit a 12-month low in today’s trading. Like boohoo, it faces a risk from inflation. A tightening economy could also mean customers spend less money doing up their homes, hurting revenues and profits at Dunelm.
But I continue to see strong growth potential here. Last quarter’s revenues were 69% higher than the same quarter last year. The nine months to March saw sales grow 25% compared to the prior year equivalent. With a 3.6% yield and price-to-earnings ratio of 15, I would consider Dunelm among the growth shares to buy now for my portfolio.
Income shares to buy now
I would also consider some shares to buy now that could boost my passive income.
One is insurer Direct Line. It trades on a P/E ratio of 11 and yields 8.9%. Such a high yield could signal some risk the market sees. I do think rising car prices could hurt profits at the company in the short-term as they impact claim settlement costs. But the business has a robust model focussed on markets like home and motor insurance that I think will see strong continued demand. Its iconic red telephone logo also gives it an advantage in attracting customers.
The other income pick I would buy right now for my portfolio is tobacco maker Imperial Brands. The owner of iconic brands like Winston and Lambert & Butler has pricing power. That could allow it to offset the risks to profits from falling cigarette sales in many markets. It is also developing non-cigarette product ranges that could benefit from those strong brands. With a dividend yield of 8.5%, it is on my list of shares to buy now for my portfolio.