A young relative of mine, who’s resolved to start investing, recently asked me: “What are the best stocks to buy?”
I explained I wasn’t a financial advisor. And that the best stocks for her to buy would likely be different to the best stocks for me. Among other things, her investing horizon is far longer than mine. And personal circumstances also make capital preservation something of a priority for me.
Having said that, rising inflation is eating away at the ‘real’ value of lower-risk assets. With shares having the potentialto offset it, I’m currently considering somewhat increasing my exposure to equities. Here are five stocks I’ve got my eye on to start with.
Best stocks to buy
Many businesses in the consumer discretionary market sector are only just recovering from the pandemic. Concerns about the cost-of-living crisis may also be weighing on these stocks.
Nevertheless, I like Whitbread, the owner of value hotel chain Premier Inn, and Everyman Media, which has a premium cinema offering. I’ve been a customer of both over the years and feel I know the businesses well.
I think Whitbread has a terrific opportunity to replicate Premier Inn’s UK success in Germany. I’m conscious that expansion into a new country isn’t without risk. But I take the company’s recent resumption of dividends as a sign of management’s confidence.
Meanwhile, consumer belt-tightening could be more of a risk for premium-positioned Everyman. It’s the only one of my five companies not currently paying a dividend. However, I think its differentiated offering, scope for expansion, and strong balance sheet stand it in good stead.
Consumer staples
Many investors believe some of the best stocks to buy can be found in the consumer staples sector. I agree. These businesses tend to have relatively reliable cash flows through the economic cycle. PZ Cussons and Alliance Pharma both continued to pay dividends through the pandemic.
I like PZ Cussons for its strong stable of personal care brands, including Carex, Original Source, and Sanctuary Spa. The company’s been in the doldrums for some years, but I think new management’s got it back on track. However, I have to accept the risk it could be a false dawn.
Alliance Pharma owns a large portfolio of established cash-generative prescription drugs. But what excites me is its brand-building of a handful of acquired consumer healthcare products, including fast-growing scar treatment Kelo-cote. So far, so good, but there’s nevertheless a risk management could make a duff acquisition in the future.
Going for gold
Finally, I’ve always owned some physical gold as a classic ‘store-of-value’ asset. However, I’ve been thinking for some time about increasing my exposure by investing in a gold miner. There’s operational risk, but also the potential for dividend income (unlike gold itself).
Many of the gold miners listed on the London Stock Exchange operate in single territories in less stable parts of the world. As such, there’s also geopolitical risk. Look no further than the share prices of Russian producers Polymetal and Petropavlovsk.
Yamana Gold may not have the highest dividend yield, but I think it could be my best stock to buy in the gold market sector. The reason for this is its geographical diversification. Its mines are located across Argentina, Brazil, Canada, and Chile.