The Stocks and Shares ISA is a great vehicle for my investments. It offers me the opportunity to invest in a tax efficient manner and can be accessed through a platform of my choosing.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
This year, my pot is down. But that’s hardly surprising when I look at the market as a whole. Unless I invested solely in commodities, it’s pretty likely that my portfolio would be in the red.
And, as a long-term investor, I shouldn’t be too bothered by short-term losses. Instead, I’m seeing the current market as an opportunity. Right now, I’m investing in my ISA while valuations are attractively low.
So, let’s take a closer look at why I’m investing now, and which stocks I’m buying.
Low valuations
The FTSE 100 is actually up nearly 5% over the past year, but it’s been pulled upwards by its heavy weight in commodity stocks. The largest company on the index is Shell, which is up 41% over the past 12 months.
However, the performance of the index belies the falling share prices of non-commodity stocks. The FTSE 250, which has less weighting in commodities, is perhaps more reflective of the wider performance of UK stocks. It’s down 14%.
But while share prices have been falling outside commodities sectors, companies aren’t necessarily struggling. As a result, right now, there is no shortage of cheap UK-listed stocks.
Housing is the perfect example. Looking at six of the UK’s top developers, they currently have an average price-to-earnings (P/E) ratio of 7.3.
British banks too. Barclays is currently trading with a P/E ratio of 4.2, while Lloyds has a P/E ratio of six. Although, it is worth noting that Barclays saw H1 profits slide after a huge misconduct charge.
My top picks
The P/E ratio isn’t the only metric for valuing a company. And a low P/E doesn’t mean that a company is necessarily undervalued; there might be other factors at play. So, here are some of my top stock picks that I’m buying for my portfolio.
Persimmon is one of my favourite housebuilding stocks, not because of its massive dividend, but because it is among the least impacted by the cladding crisis. The developer has set aside £75m for recladding operations following negotiations with the government. The figure only represents around 10% of pre-tax profits in 2021. A tiny impact compared with other housebuilders.
The company also recently announced that profits were up in the first half of the year, but deliveries are down. Personally, I see nothing wrong with making more money while selling fewer units. Interest rate rises might impact demand in the near term, but in the long run, I’m bullish on the property sector and see now as a great time to buy more of this stock for my portfolio.
Lloyds is my top banking stock to buy. On Wednesday, the lender lifted annual guidance after a rise in net income for the half-year due to rising interest rates. Higher rates mean higher margins. Although it might also reduce demand for products like mortgages.
The bank is also moving into the rental market. It is looking to buy 50,000 homes over the next decade. This project could help margins, but will increase the lender’s exposure to the property market. In 2021, 61% of gross lending was mortgages.