I have been looking for UK shares to buy now for my portfolio. The good news is that some stocks have been losing ground, meaning I can buy them much cheaper today than previously.
Here are a couple of examples of shares trading at just such a discount, that I would consider adding to my ISA in September.
Dunelm
Shares in homewares retailer Dunelm (LSE: DNLM) have lost close to half their value in the past year, falling 45% in that period. But why?
Clearly there are worries among investors about risks, such as falling consumer spending leading to lower revenues for retailers. A lot of home decoration is seen as discretionary. So as household budgets tighten, it may be paused in favour of paying for everyday necessities such as food and energy.
I am not sure that will happen though. Dunelm has some very cheap products that might be just what shoppers want to cheer themselves up when times are tough.
I also think the sheer quality of this company makes it stand out to me as an investor. It grew sales last year by 16% and sales are now 40% higher than they were before the pandemic. The company has a track record of growing its market share, meaning it should be able to improve sales even when market demand overall is flat.
The company is also free of debt, giving it an enviable balance sheet going into a recession. It also offers a 5% yield. Despite these attractive financial qualities, Dunelm shares now trade on a price-to-earnings ratio of less than 10.
These look like bargain UK shares to buy now and hold in my portfolio – which is what I am doing. I have already bought some Dunelm shares and I am considering purchasing more in September.
Direct Line
Another company that has seen its share price tumble in the past year is insurer Direct Line (LSE: DLG). The shares are trading 32% lower than they were 12 months ago.
There are some reasons for that. Soaring second-hand car prices threaten to make the insurance business less profitable than it was before. New rules on renewal pricing that were introduced this year could also lead to profit margins falling at insurers.
But insurance is an enduring business that I expect to benefit from strong ongoing demand. Insurers are expert at matching their pricing to what the market can tolerate, so I expect Direct Line to remain profitable.
Even though profits declined 32% in the first half compared to the same period last year, Direct Line still earned £178m across six months — almost a cool million pounds each day. That helps fund a big dividend, with the yield currently sitting at a tempting 10.8%.
The company has strong customer awareness and over 13m policyholders. That could set the foundation for ongoing profits. I am optimistic about the long-term outlook for Direct Line, despite the share price fall. If I had spare cash to invest and was looking for UK shares to buy now, this is one of the companies I would consider.