I’m on the hunt for the best stocks to buy for my holdings. I want to buy stocks that are on a growth trajectory as well as providing consistent and lucrative returns.
One way I believe I can do this is by looking at trusts that invest in a number of different businesses. One I’m currently considering is 3i Group (LSE:III). Should I buy or avoid the shares?
Venture capitalists
As a quick introduction, 3i is one of the biggest investors in private companies in the UK. Its strategy is to get in early with growth companies and it has a long track record in investing in and helping grow tech firms.
So what’s happening with 3i shares currently? Well, as I write, they’re trading for 1,245p. At this time last year, the stock was trading for 1,272p, which is a 2% drop over a 12-month period. More tellingly for me, however, is the fact that 3i shares have returned 11% since the stock market dip of March, from 1,113p to current levels.
The best stocks to buy have risks too
One of the biggest issues facing 3i Group is that of macroeconomic headwinds. These include soaring inflation, the rising cost of materials, and the global supply chain crisis. A lot of businesses in 3i’s portfolio are consumer goods businesses. This means most are at the mercy of these headwinds. 3i could see profitability and operations negatively affected by cost pressures and supply chain issues.
One risk I always associate with investment trust stocks such as 3i, is over-diversification. Access to a multitude of businesses in a number of sectors isn’t always a good thing. Different businesses and markets perform differently and this can have a negative impact on returns and growth sometimes. This can especially be the case during times of economic volatility like now. I will keep an eye on 3i’s portfolio and performance closely to monitor this.
The bull case and what I’m doing now
So to the positives then. I often refer to a stock’s performance to gauge investment viability, although I do understand that past performance is not a guarantee of the future. Looking closely at 3i, I can see it has a consistent track record. Performance was affected by the pandemic period, but revenue growth returned the following year.
Next, 3i shares would boost my passive income stream through dividend payments, as many of my other best stocks to buy do. At current levels, the shares’ dividend yield stands at close to 4%. This is broadly in line with the FTSE 100 average of 3%-4%. I do understand that dividends are never guaranteed and can be cancelled at any time, however.
Finally, at current levels, 3i shares look dirt-cheap to me on a price-to-earnings ratio of just three. The FTSE 100 average is close to 15 and the general consensus is that a ratio below this indicates value for money.
In conclusion, I believe 3i Group could be one of the best stocks for me to buy for my aims of growth and increasing returns. The shares look good value for money, the business has a good track record of performance, and there’s a dividend currently too. I would add the shares to my holdings.