I see a lot of attractive UK shares these days, with fear driving many investors away from the stock market. If I had £5,000 to invest right now, which shares would I buy?
I’d split the cash into five lots, and spread it across different sectors for diversification. I think £1,000 is a cost-effective amount for a single purchase with a low-cost broker. So which five am I eyeing up with a view to buying today?
Defence giant
The BAE Systems share price spiked after the Russian invasion of Ukraine. It’s now up 48% over the past 12 months. On current forecasts, the stock is on a forward P/E of 15. The predicted dividend has dropped to 3.5%, though, and there are certainly bigger ones out there.
There’s a risk that we’re looking at a sentiment-based jump which will fall again in the near term. So I might hold back and buy on any future dips.
I don’t see a screaming bargain. But BAE still looks like a great company on a fair valuation.
Medical profits
Smith & Nephew slumped when the pandemic pushed elective surgery off the priority list. It’s down 16% over 12 months, and below pre-pandemic levels.
I see solid long-term demand for the company’s orthopaedic products, like joint replacements. Add in sports medicine and wound management, and it shouts resilience to me. There’s surely growth potential in developing countries too.
The risk I see is in valuation, with a P/E in the 20s. But a couple of years of forecast growth could bring that down.
Sporting rebound
JD Sports Fashion shares have lost 38% in 12 months. JD took a financial penalty in early 2022 over shortcomings in its takeover of Footasylum. Its products fit into the discretionary spend category, which is under pressure from the soaring costs of essentials.
All in all, I can understand why investors have shunned JD for less troubled UK shares. But analysts are bullish about future earnings, and JD’s May trading update was upbeat. Facing a tough economic outlook, this is possibly my riskiest choice. But I think I’m seeing an oversold stock here.
Second chance
I thought I’d missed Safestore Holdings, after its shares soared in 2021. But we’ve since seen a big drop, though the price is still up 19% over 12 months.
I like Safestore’s business model, buying commercial property when it’s cheap to split into self-storage units. It looks like a resilient business to me. And it’s one that doesn’t need huge amounts of reinvestment.
Again, the risk is valuation, with the shares up 150% in five years. But I’m seeing attractive cash flow potential, plus progressive dividends.
Wealth management
M&G offers one of the biggest dividends around right now, at 9%. That’s forecast, so it might not come off, but it is in line with last year’s payout.
I believe any portfolio of UK shares can potentially benefit from including an investment manager. Whoever is winning and losing on the stock market, those who manage the investments take their cut.
An outflow of funds in hard times could see the share price fall, and we do face hard times. But even with that short-term risk, I’d buy M&G for the long term with part of my £5,000.