Investing

For me, investing is about giving myself the ability to make money that I don’t have to work for. I can’t work all the time (and I don’t want to). 

Businesses, however, can do this. So by buying shares in a business, I can own something that will make money for me even when I’m not working.

According to its website, Coca Cola sells over 1.9bn servings of its drinks each day. That’s just under 22,000 every second of the day.

If I owned stock in Coca Cola, as Warren Buffett does, I’d have an asset that can make money for me 24 hours a day, 7 days a week, 365 days a year.

That’s what investing is about to me. It’s about owning assets that generate cash continuously without me having to work for it.

Consistent earners

The two stocks on my list are Greggs (LSE:GRG) and Premier Foods (LSE:PFD). I think that both of these are companies that can consistently make money for me.

Greggs is listed on the FTSE 100 and has fallen by more than 44% since the beginning of January. 

The company makes and sells more than two million sausage rolls every week. That’s more than three every second. 

I think that this qualifies it as a business that can earn money for me even when I’m too tired to work. So I’d buy the shares today if I were looking to start building an asset base.

Premier Foods is listed on the FTSE 250. Since the start of the year, the stock is down 15%. 

A few years ago I wouldn’t have gone anywhere near this stock. Its debt was too high and the company wasn’t in a good financial position.

Today, though, things look quite different. Total debt has reduced from £498m in 2019, to £339 today. 

As a result, I would buy shares in Premier Foods if I were starting to invest today. The company produces packaged foods that have been popular with customers recently.

Economic conditions

In my view, Greggs and Premier Foods both can fare well in a recession. Their products are cheap and I think that this means that demand will remain steady even as household budgets come under pressure.

The risk with these companies comes from inflation. Having a low price point to customers means that neither Greggs nor Premier Foods has much scope to pass on higher input costs. 

I think, however, that both businesses are demonstrating a degree of resilience. Both are maintaining operating margins above 10%, which I think is good for these types of businesses.

The macroeconomic situation in the UK will influence how well these businesses do. But if I were starting to invest in companies that can generate money for me consistently, I’d buy these UK stocks.

Fortunately, I can refer to a handy checklist that the Oracle of Omaha penned for stock picking.

In a 1985 letter to Berkshire Hathaway shareholders, the super investor included a ‘business wanted’ ad.

In the ad, he enumerated the four criteria a business must meet if it is to stand any chance of tickling his fancy. Given I am currently in a quandary over whether to buy shares in Premier Foods (LSE:PFD), I will apply the checklist to this example.

1) At least $10m of after-tax earnings

Because Buffett penned his checklist all the way back in 1985, I need to adjust this figure for inflation. In today’s prices, $10m would be around $30m, or £26.5m.

Premier Foods owns 20 brands – including family favourites such as Angel Delight, Cadbury’s, Loyd Grossman, Oxo, and Smash.

And with after-tax earnings in 2021/22 of over £100m, the tasty empire easily breezes past Buffett’s benchmark.

A strong start!

2) Demonstrated consistent earning power

To this, Buffett added: “future projects are of little interest to us, nor are ‘turn around’ situations“. At Berkshire Hathaway, they are not starry-eyed dreamers looking for an underdog story. They want to invest in businesses that are tried and tested.

Once again, Premier Foods seems to fit the bill. The company dates all the way back to 1837. And with a well-diversified portfolio of familiar food brands in its arsenal, I don’t see Premier Foods going away any time soon.

3) Simple businesses

Again, Buffet clarified, “if there’s lots of technology, we won’t understand it“. I don’t think there are many businesses that are as straightforward as Premier Foods. From desserts to pasta sauces and gravy granules, most people in the UK have had first-hand experience with all of the company’s flagship brands.

4) Businesses earning good returns on equity while employing little or no debt

Investors can easily look up a ticker on Yahoo Finance to find a company’s return on equity (RoE).

This metric is calculated by dividing net income by shareholders’ equity (that is, assets minus liabilities).

Of course, the Oracle of Omaha adds the caveat that the company should have little to no debt. That is because, by borrowing money, a company shrinks its equity (as the liabilities rise relative to assets). Then, net income ‘artifically’ looks bigger compared to equity.

At this point, Premier Foods begins to stumble. With a trailing 12-month RoE of 5.8%, the food purveyor trails comparable businesses like Nestlé (RoE of 36.1%) or Pepsi (54.6%).

Then again, Premier Food’s debt is relatively lower – at 22.5 times shareholders’ equity. To put that into perspective, Nestlé has a debt-to-equity ratio of 119.5, while Pepsi’s is 210.3.

There is a basic trade-off at play here: the more debt, the higher the RoE appears. So, to some extent Premier Foods can be excused for its lethargic RoE insofar as this is due to its more conservative use of debt.

The verdict

From my perspective, Premier Foods meets all of Buffett’s criteria. However, its RoE is nothing to get too worked up over. I think I can find better, so I won’t be buying.

This week, the National Institute of Economic and Social Research (NIESR) warned that the global economy is “fraying at the edges“. It reduced its global growth forecasts for the next two years — which stood at 3.3% and 3.2% for 2022 and 2023 respectively — to 2.8%.

The NIESR added that “there are increased recession risks in a number of countries” as inflation continues to soar.

Pleasingly however, there are many stocks on the London Stock Exchange where trading should remain robust — or perhaps even thrive — in the event of a recession.

Here are three I think cautious investors like me should buy this August:

1. Begbies Traynor Group

Begbies Traynor (LSE: BEG) is a stock which thrives in tough times like these. It’s an insolvency practitioner and provides other services for companies in distress.

In fact, the business is already performing strongly as the United Kingdom economy flatlines. It’s why it said last month it already expects full-year trading to be towards the top end of expectations for the financial year beginning May.

Fresh Insolvency Service data this week suggests that profits forecasts could be steadily upgraded too. This showed the number of corporate insolvencies in England and Wales hit a seasonally-adjusted 5,629 in quarter two. This was up a whopping 81% year-on-year.

My only concern with Begbies Traynor is how a lack of suitable acquisitions could hit its long-term growth strategy.

2. Greggs

Greggs (LSE: GRG) is another top stock to buy for when times get tough. This is because Britons’ love of a hot drink and a sausage roll remains undimmed at all points of the economic cycle.

It’s also because the baker’s large ranges of low-cost foods are perfect products to sell when consumers feel the pinch. This explains why sales jumped 27.1% year-on-year in the first half of 2022.

There are other reasons why, as an investor, I like Greggs. Steps like introducing meat-free and healthier options to its menu have proved highly successful. So has its decision to embrace e-commerce and introduce services like click & collect and delivery.

I’d buy Greggs shares despite the rising threat of cost inflation to its profits.

3. Premier Foods

Finally, I’d also snap up shares in Premier Foods (LSE: PFD) today. That’s even though it operates in a highly-competitive marketplace.

Like Greggs, this stock benefits from the fact that our need for food remains constant, irrespective of broader conditions. And just like the baker, Premier Foods has a broad stable of foods that are cheap to buy and prepare. Products such as its Batchelors Super Noodles and Cup a Soup.

The strength of its popular brands like Mr Kipling also help profits remain stable during recessions. As robust recent results from Unilever and Reckitt show, shoppers continue to buy the brands they love in massive volumes, even when their purses are lighter. This enables companies like this to keep raising prices.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Scottish Mortgage Investment Trust 

What it does: Scottish Mortgage invests in a global portfolio of companies through a mix of listed and unlisted shares.  

By Charlie Keough. My top British stock for August is Scottish Mortgage Investment Trust (LSE: SMT). I’ve long been a fan of this equity. And with its share price taking a hit this year, I think this offers a great time for me to buy. 

The management team aims for growth over a five-year period. And while past performance is no guarantee of future returns, the last five years have seen the trust return around 100% to shareholders.  

Scottish Mortgage has suffered this year due to its focus on growth stocks. While these may continue to stall in the near run, over a more extended period I think the trust has the potential to provide me with some substantial returns (like it did when buying Tesla in 2013). 

Ongoing struggles in China, along with the likely potential of inflation continuing to dampen investor confidence, could see the stock slip. However, I’d buy the stock in August as a long-term hold.  

Charlie Keough does not own shares in Scottish Mortgage Investment Trust. 

Premier Foods 

What it does: Premier Foods manufactures a broad range of foods and ingredients like cakes, custard, cooking sauces and gravy.

By Royston Wild. Purchasing shares in food producers like Premier Foods (LSE: PFD) has traditionally been a popular play for investors during tough economic times. Food is one thing that people don’t stop spending on when times get tough. 

But businesses like this aren’t risk-free at the moment. Spending is plummeting at an alarming rate as the cost-of-living crisis worsens. The Office for National Statistics says that 50% of Brits are buying less food when doing the food shop. 

But in this climate I’m encouraged by how resilient trading at Premier Foods has remained. Revenues here rose 6% in the 13 weeks to 2 July, meaning the business remains on track to meet full-year expectations. 

I like Premier Foods because it sells food at the value end of the market under brands like Batchelors. Furthermore, I appreciate the excellent brand power of products like Mr Kipling cakes and Homepride cooking sauces. Volumes of beloved labels like these tend to remain more stable during downturns.

Premier Foods trades on a forward P/E ratio of just 10.2 times. I think this makes it a top value stock to buy in August. 

Royston Wild does not own shares in Premier Foods. 

Experian

What it does: Experian is a British technology company that specialises in consumer credit data.

By Edward Sheldon, CFA. FTSE 100 company Experian (LSE: EXPN) has seen its stock price pull back in 2022 and I think this has provided an attractive buying opportunity in August.

A trading update posted in mid-July showed that the company has momentum at present. For the three-month period to 30 June, total revenue was up 7% year on year. Meanwhile, looking ahead, the company said that it expects total revenue growth of 8-10% for the year ending 31 March 2023.

As for the stock’s valuation, it seems quite reasonable to my mind. With analysts currently expecting the group to generate earnings per share of around $1.36 this year, the P/E ratio here is around 25. I don’t see that as excessive given Experian’s market dominance, growth rate, and high level of profitability.

Of course, if the tech sector continues to experience weakness, Experian shares could underperform in the near term. Taking a long-term view, however, I see the risk/reward profile here as attractive.

Edward Sheldon owns shares in Experian.

International Consolidated Airlines Group

What it does: This company is an airline conglomerate that operates across the entire globe. It owns a number of well-known airlines, including British Airways, Aer Lingus, and Iberia.

By Andrew Woods. International Consolidated Airlines Group (LSE:IAG) was battered as the pandemic made its way around the world. This was primarily because countries shut their borders and virtually all commercial flights were grounded.

The result was that IAG swung to a €7.8bn pre-tax loss in 2020 as its income sources became ever more limited. This forced the firm to issue new shares to raise capital in the midst of the crisis.

In 2021, however, pre-tax losses more than halved to €3.5bn. During an update for the first three months of 2022, it stated that it may even return to profitability in the middle of this year. In those first three months, revenue climbed to €3.4bn compared to €963m for the same period in 2021.

Although passenger capacity is improving, recent cancellations due to staff shortages could delay progress. Nevertheless, I think August may reveal that IAG has once again hit calmer skies and I’ll be adding more shares if it does.

Andrew Woods owns shares in IAG.

Fresnillo 

What it does: Fresnillo is the world’s largest primary silver producer and Mexico’s largest gold producer, with seven operating mines. 

By G A Chester. Fresnillo (LSE: FRES) has been through a difficult few years. Covid disrupted its operations quite severely at times. And the introduction of new labour legislation last September also presented challenges. 

However, management recently reported a solid second quarter of production in line with its expectations. It said this was despite some continued impact from the pandemic. 

The company’s also made good progress in adapting to the Mexico labour reform. This required it to internalise a high proportion of its contractor workforce. It said its recruitment and training campaigns are proving effective and that it should complete the process by the end of the year in its underground mines. Meanwhile, it said its open pit mines are now fully staffed. 

With operations normalising, a Covid-delayed major growth project ready to ramp-up, and a good pipeline of further development projects and exploration prospects, I think Fresnillo is ripe for a recovery. 

G A Chester does not own shares in Fresnillo. 

Ibstock

What it does: Ibstock is the UK’s leading manufacturer of clay bricks and concrete products used by the construction industry.

By Zaven Boyrazian. The property market is notoriously cyclical. And with the Help-To-Buy scheme coming to an end soon, it’s possible for a downturn to be arriving soon. However, when it comes to long-term demand, the need for housing isn’t going anywhere. And that’s terrific news for my top stock to buy for August, Ibstock (LSE:IBST).

The brick manufacturer has suffered quite a few disruptions from Covid-19. However, those woes seem to be in the past and business has begun to ramp up again.

Its latest interim results demonstrated double digit growth for revenue and profits thanks to an uptick in sales volumes. Meanwhile construction for its new Atlas and Aldridge redevelopments continue to be on track for completion for the end of 2023.

Once brought on-line, these facilities will expand the firm’s manufacturing capacity by 115 million bricks per year. And given Brexit has made importing bricks far more expensive, the firm may be in a prime position to capitalise on the opportunity.

Zaven Boyrazian does not own shares in Ibstock.

Moneysupermarket.com

What it does: Moneysupermarket.com operates price-comparison sites for money, home services, money, insurance and other products

By Paul Summers: I’ve been banging the drum on Moneysupermarket.com (LSE: MONY) for some time now. Unfortunately for me, other investors haven’t agreed with my bullish view and the share price is still down 18% in the last year. The inability of consumers to switch energy suppliers hasn’t exactly helped.

Despite this, I’m in no mind to sell my holding. Quite the opposite.

Earlier this month, the company stated that revenue had grown 19% over the first six months of 2022. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 10%, which was ahead of expectations. The interim dividend was maintained too.

With consumers trying to save money where they can, I think this positive momentum can continue. At just below 16 times earnings as I type, the stock still trades at an attractive valuation and there’s a 5.7% yield in the offing if the full-year payout is kept steady.

Paul Summers owns shares in Moneysupermarket.com

Airtel Africa

What it does: Airtel Africa is a leading operator of telecoms networks and mobile money services in Africa.

By Roland Head. Shares in Airtel Africa (LSE: AAF) have doubled since the company floated on the London Stock Exchange three years ago. I think further gains are likely.

Recent first-quarter results showed revenue up by 13% to $1,257m during the three months to 30 June. This growth was mainly due to a 25% increase in mobile money revenue and a 20% rise in data revenue.

Many African countries lack the formal banking networks and fixed-line telecoms services we take for granted. I think that demand for internet and financial services will continue to be driven by rising mobile usage.

One possible risk is that Airtel Africa carries a fair amount of debt — $3,056m at the last count. However, debt is falling, and cash generation is strong.

Airtel shares trade on 11 times forecast earnings, with a 3% dividend yield. I see the stock as a long-term buy in August at this level.

Roland Head owns shares in Airtel Africa.

Compass Group 

What it does: Compass Group is a FTSE 100 global leader that runs workplace canteens for thousands of organisations across 44 countries.  

By Harshil Patel. Given soaring food prices, some might be surprised that I think it’s a good idea to buy food services provider Compass Group (LSE:CPG). But it’s rising food and energy costs that are pushing more organisations to outsource this function.  

As a specialist in the field, Compass has a better chance to provide catering functions at lower cost and greater flexibility. 

Compass says that it’s winning new business. And that has helped it to raise its sales growth predictions for the second time this year. I reckon it’s a trend that could continue into next year.  

Whereas finding the right staff is a challenge plaguing many organisations right now, Compass seems to be managing relatively well.  

Now, as it’s a physical business, any further pandemic-related disruptions could affect earnings. However, all things considered, I’m banking on its strong cash flow, earnings growth and dividend growth to provide me with solid shareholder returns. 

Harshil Patel does not own shares in Compass Group. 

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Premier Foods

What it does: Premier Foods manufactures a variety of branded and supermarket own-brand packaged food products.

By Stephen Wright. My top British stock for investors to buy in July is Premier Foods (LSE:PFD). I’ve been interested in this stock for a long time, but I think it might finally have reached a stage where I’d like to buy shares for my portfolio.

If you’ve ever heard that your branded custard and your supermarket-brand custard are from the same factory, this is true. And Premier Foods is the company that owns that factory.

I think that demand for this company’s products should remain stable, even in a recession. And the stock trades at a price-to-earnings (P/E) ratio of just under 13, which I think is reasonable.

To my mind, Premier Foods had always had too much debt and that’s stopped me from buying shares. However, with management having substantially reduced debt over the past few years, I’m looking at buying shares in July.

Stephen Wright does not own shares in Premier Foods.

Grainger 

What it does: Grainger is the largest residential landlord on the London Stock Exchange with a portfolio of around 10,000 homes. 

By Royston Wild. In theory, residential landlords like Grainger (LSE: GRI) could suffer some turbulence as the economy sinks. As the employment market weakens, the chances of their tenants missing rent payments increases. 

Recent data showing Britons drastically cutting food spending indicates the extreme financial pressures people are facing today. 

Past events are not always an accurate indication of what’s to come. But encouragingly, history shows us that spending on accommodation by and large tends to remain stable during all points of the economic cycle. As a result, I think Grainger is an ideal stock for me to buy in July as the cost-of-living crisis worsens. 

In fact, this is a property stock I’d buy to own for the long haul. The UK’s shortage of available rented homes looks set to drag on, meaning Grainger should continue to enjoy strong rental income growth.

Finally, I like the steps the business is taking to rapidly expand to supercharge profits growth. For instance, in late May it spent £128m to acquire another build-to-rent development in Bristol. 

Royston Wild does not own shares in Grainger. 

Associated British Foods

What it does: ABF owns fashion retailer Primark and a range of food businesses, including Kingsmill, Twinings and sugar producer AB Sugar.

By Roland Head. Family-controlled Associated British Foods (LSE: ABF) has been through a tough period. But I think I am now seeing a rare buying opportunity for this stock.

Primark was hit hard by the pandemic because it doesn’t sell online. But the company’s value offering is chiming with consumers battling the cost-of-living crisis. Primark sales rose by 81% to £1.7bn during the 12 weeks to 28 May, compared to the same period last year.

Interestingly, Primark is now trialling a click-and-collect service. This could lead to a full online retail offer.

The main risks I can see relate to ABF’s food and agriculture businesses. With costs rising, I can imagine that profit margins could be squeezed by big buyers such as supermarkets.

However, ABF shares currently trade on around 12 times forecast earnings. I’ve rarely seen them so cheap. I think this could be a great long-term buying opportunity for my portfolio.

Roland Head does not own shares in Associated British Foods.

Reckitt

What it does: Reckitt is a consumer goods company that is focused on health, hygiene, and nutrition.

By Edward Sheldon, CFA. Given the amount of economic uncertainty we’re facing right now, I think it’s a good idea to buy more defensive dividend stocks for my portfolio. And one stock that fits the bill here is Reckitt (LSE: RKT).

Reckitt is certainly defensive in nature. Even in a recession, people are still going to buy its health products (e.g. Strepsils lozenges) if they fall ill. Meanwhile, it also has a nice dividend. At present, the prospective yield on offer is just under 3%.

Another attraction of Reckitt is that it’s currently benefiting from the infant formula shortage in the US. With a major rival recalling its products due to contamination fears, the company has been able to capture market share. This has boosted revenues on the nutrition side of the business.

Now, this stock does have an above-average valuation, which adds some risk. However, all things considered, I think it’s a smart buy for my portfolio in the current environment.

Edward Sheldon owns shares in Reckitt.

AstraZeneca

What it does: AstraZeneca is one of the largest biotech firms in the world focused on tackling cancer, respiratory, and cardiovascular diseases.

By  Zaven Boyrazian. The biotech sector is fraught with enormous development challenges and financing risks. Yet, for the groups that succeed, humongous growth can be uncovered. That certainly seems to be the case for AstraZeneca (LSE:AZN) at the moment.

Despite being a giant “blue-chip” player in the space, shares have climbed by almost 30% year-to-date. The company has been delivering a slew of positive clinical trial results for several of its ongoing projects. But most notably is its phase 3 breast cancer treatment, Enhertu, which achieved a 49% reduction in disease progression versus traditional chemotherapy.

The drug is now being recommended for European approval by the Committee for Medicinal Products for Human Use (CHMP). And, if granted by regulators, it could untap a multi-billion-dollar market opportunity from just one of its products in the pipeline.

Pairing this exciting prospect with a diverse product pipeline and plenty of resources at its disposal makes AstraZeneca a business I’m considering for my portfolio today.

Zaven Boyrazian does not own shares in AstraZeneca.

Fresnillo

What it does: Fresnillo is a miner and producer of precious metals, including gold and silver, and operates in Mexico.

By Andrew Woods. In 2021, Fresnillo (LSE:FRES) reported that profit before tax had increased by about 10.9%, while revenue grew by 11.2% over the same period. Much of this has been due to higher metal prices over the past couple of years.

While silver production remained flat last year, gold production fell by 2.4%. This decline may be offset in future by the opening of two new plants at Juanicipio and Pyrites. Both of these could bolster production in the years ahead.

In a wider sense, investors may flock to gold and silver to avoid inflationary risk. With inflation set to rise to 10% in 2022, this trend could mean that the value of Fresnillo’s produce increases over time.

There are risks, though. The company could begin to feel the pinch from higher energy costs. In addition, there is the challenge of workers’ potential wage inflation. Further regulations may also impact on operations, as could any pandemic resurgence.  

Andrew Woods does not own shares in Fresnillo.

B&M European Value Retail SA

What it does: B&M is a discount retailer selling branded products to over four million customers a week.

By Paul Summers: Its share price has been struggling lately but I reckon discount retailer B&M European Value Retail SA (LSE: BME) is worth a closer look. With inflation likely to continue climbing over the summer, the company is well placed to benefit from an extended period of belt-tightening by UK consumers.

True, recent full-year results weren’t particularly well received. Revenue was down slightly on the previous year (but still way up compared to two years ago) and profit was flat. News that the CEO Simon Arora is to depart has also made investors nervous.

Still, I think a lot of bad news is now baked in. A P/E ratio of just over 10 at the time of writing looks reasonable. A 5% forecast dividend yield is chunky and looks very unlikely to be cut based on earnings expectations.

Paul Summers does not own shares in B&M European Value Retail SA

Rolls-Royce

What it does: Rolls-Royce is a manufacturer of engines for commercial aircrafts, business aviation and military transport, as well as developing onsite power and propulsion systems.

By Andrew Mackie: The recent woes of Rolls-Royce (LSE: RR) have been well documented, but I am starting to see real value at the level the share price is trading at.

What has sparked my interest was the recent civil aerospace investor day, which has led me to believe that there is light at the end of the tunnel.

Consistent investment over many years in its core markets of wide-body aircrafts and business aviation are starting to bear fruit. The business is now going through a period of less-intense new-product introductions, meaning that it will be able to capture a greater proportion of revenues through lucrative service contracts.

Another area that has seen explosive growth is in the passenger-to-freighter conversions. Rolls-Royce is primed to capitalise on this emerging trend. As supply chains have become increasingly constrained, companies have been looking for new ways to move their goods across the globe. The Trent 700 engines have a near complete monopoly in this space.

Exactly timing a likely recovery in the share price is impossible. But I am convinced that, long term, the trend will be higher.

Andrew Mackie does not own shares in Rolls-Royce.

British American Tobacco

What it does: British American Tobacco is a United Kingdom-based, multi-category consumer goods company that provides tobacco and nicotine products.

By Kevin Godbold. It’s hard for me to ignore the tempting numbers coming from British American Tobacco (LSE: BATS). With the share price near 3,560p, the forward-looking dividend yield for 2023 is just above 6.8%.

Annual dividend payments have been rising for several years. And they are backed by a robust flow of cash into the business. Meanwhile, elevating profits and a vibrant share buyback programme look set to drive earnings higher.

BATS is winning market share for its new products aimed at reducing some of the harmful effects of smoking. And losses have been reducing for the category. But the traditional smoking products are still a cash cow for the company despite a trend of declining worldwide volumes.

The industry faces intense regulatory scrutiny at times. And that could increase the risk for investors. But I’m holding the stock and believe it could do well in July and beyond.

Kevin Godbold owns shares in British American Tobacco.

Breedon

What it does: Breedon is the UK’s largest independent construction materials firm. It produces cement, aggregates, asphalt, and other construction materials.

By John Choong. With the government recently announcing its new ‘Help to Build’ scheme, there are a number of stocks that could benefit from the initiative. One of which is AIM-listed, Breedon (LSE: BREE). A new house typically uses more than a 100 tonnes of cement and aggregates combined, on average. Therefore, new builds from the scheme should bring a tailwind to Breedon’s top line.

Breedon has multiple streams of income. The firm builds other infrastructure as well, such as roads, of which it has a sizeable contract surfacing and highway maintenance business. Additionally, the S&P Global/CIPS UK Construction PMI (a measure of how well the construction sector is doing) is still posting strong figures of growth.

So, with a P/E ratio of 13 and a forward P/E of 10, the stock definitely seems reasonably priced. Analysts have also given the stock an average price target of £1.00. As such, Breedon shareholders could potentially grow their money by 60%.

John Choong does not own shares in Breedon.

Unilever

What it does: Unilever is a fast-moving consumer goods manufacturer that owns premium brands like Dove. 

By Christopher Ruane. It has been a challenging year for consumer goods maker Unilever (LSE:ULVR). The company behind premium brands like Domestos and Lynx has been battling with rampant cost inflation. That threatens to eat into profit margins.

I think that helps explain why the Unilever share price has fallen by 13% over the past year. Investors are worried that inflation could hurt profits. In the short term, I think that is true. But I am a long-term investor, and reckon the current share price is a buying opportunity for my portfolio.

The sort of pricing power premium brands give a company can help it offset the challenge of inflation. So though Unilever’s volumes slipped 1% in the first quarter compared to the prior year, it still managed to grow sales by 7.3%. I think this resilient business model makes it an attractive buy for my portfolio at its current price.

Christopher Ruane owns shares in Unilever.

Food manufacturer

Premier Foods is one of the UK’s largest listed food businesses, employing over 4,000 employees across 16 locations. It produces and sells many different types of food including flavourings and seasonings, sauces, snacks, soups, and many more. Some of its best known brands are Mr Kipling, Ambrosia, Bird’s Custard and Oxo, to name a few.

So what’s the current state of play with the Premier share price? Well, as I write, the shares are trading for 120p. At this time last year, the shares were trading for 109p, which is a 10% increase over a 12-month period. In contrast to this, the FTSE 250 index has fallen 10% in the past 12 months.

For and against buying the shares

FOR: I believe Premier Foods possesses defensive qualities. In times of economic uncertainty like now, due to soaring inflation and rising interest rates, essential items such as food will still be necessary. Premier has the profile, presence, and brand power to be able to continue to perform well, in my opinion.

AGAINST: Due to the macroeconomic issues mentioned, Premier Foods may see its profit margins being squeezed. Soaring inflation has led to a rising cost of raw materials. Some of these raw materials are essential to producing food. If the cost of production is going up, profit could be affected unless prices increase. If prices increase, Premier may lose custom to competitors. All these factors could affect performance and investment viability.

FOR: I always look at performance, so let’s see what’s been happening with Premier recently. It released a preliminary update for the year ending 2 April 2022 just last week. Revenue fell slightly but profit before tax and earnings per share increased. In addition to this, it managed to decrease its debt levels, which is always a good sign in my eyes. It also declared a dividend of 1.2p per share, up from last year’s dividend of 1p per share. It is worth remembering that dividends can be cancelled at any time.

AGAINST: The current cost of living crisis in the UK has led to many consumers looking for more bang for their buck. The rise of budget supermarkets such as Aldi and Lidl has had a material impact on the more established brands in the UK. With seemingly no light at the end of the tunnel for the current crisis, more customers could move away from the established brands that Premier offers, and towards lower priced alternatives. This could affect performance and investment viability.

A FTSE 250 stock I’d buy

I like the look of Premier Foods for my holdings and I would happily add the shares at current levels.

I believe Premier’s defensive qualities will help maintain steady performance in the face of economic headwinds. In addition to this, the shares look cheap on a price-to-earnings ratio of 12 at current levels. The shares also pay a dividend which would boost my passive income stream.

Inflationary strains

Investing in value retailers is an appealing idea to me as the cost of living crisis worsens. News that Aldi and Lidl are the fastest-growing grocers right now illustrates the excellent investing opportunity here.

It’s why I’m considering buying TheWorks.co.uk (LSE: WRKS). Buying these sorts of stocks might prove a lucrative decision for long after 2022 too. The pressure on shoppers’ wallets is tipped by many to remain severe as inflationary pressures persist.

Take Andy Haldane, for example. The Bank of England’s former chief economist has said high inflation could last for “years rather than months,” suggesting that elevated price rises could last until 2024.

Working it out

The Works sells books, games, toys, and arts & crafts materials. So it could be argued that the firm might suffer as consumers slash spending on non-essential items.

I still believe the sales outlook for the budget retailer remains compelling however. I think it might benefit significantly as people switch over from more expensive retailers. After all, people don’t stop reading, and children still need toys and games when times get tough, right?

I also think The Works’ bid to bolster e-commerce revenues will pay off handsomely now and in the next few years. Between April and October 2021, online sales here jumped 81% on a two-year basis. This was helped by its large investment in products, its platform, and its fulfilment capabilities.

The Works currently trades around 51p per share. This leaves it trading on a forward price-to-earnings (P/E) ratio of 6.6 times, well inside bargain-basement territory of 10 times and below.

Another cheap UK share to buy

I believe buying Premier Foods (LSE: PFD) shares could be a profitable idea too. This is thanks to its packed stable of ultra-popular food brands.

History shows us that spending on food remains broadly resilient when times get tough. We need to keep eating to keep going, right? So this nearly-penny stock should trade more robustly than many other UK shares, the theory goes.

Premier Foods has an advantage in the market too, thanks to its winning product lines such as Mr Kipling cakes, Bisto gravy and Batchelors instant meals. These brands command supreme customer loyalty that means volumes remains strong at all points of the economic cycle.

Great value

I can’t speak about food producers like Premier Foods without mentioning the impact of rising costs on their bottom line. Commodity prices are soaring on core ingredients and could continue if the war in Ukraine continues. For example, the European Investment Bank estimates that Ukraine is sitting on €8bn worth of wheat it can’t export.

However, I think the threat of rising costs to Premier Foods’ profits are reflected in the company’s rock-bottom valuation. At 105p per share, the FTSE 250 stock trades on a forward P/E ratio of just 9.1 times.

Growth stock #1: Premier Foods

The first business, Premier Foods (LSE:PFD), is a supplier and manufacturer of food products. It is perhaps most famous for its Mr. Kipling brand of sweet treats. It currently trades at 119.8p

For the years ended April, between 2017 and 2021, revenue increased from £790m to £947m. 

Even more impressive, however, is the growth in profit before tax. This rose tenfold from £12m to £122m.

During the same time period, earnings per share (EPS) grew from 7.2p to 11.2p.

By my calculations, this means that the company has a compound annual EPS growth rate of 9.2%. This is both strong and consistent. 

Despite this solid historical growth, for the six months to 2 October 2021, profit before tax fell 2.9%, year on year, and revenue declined by 6.5%. This is an indication that issues such as wage inflation are beginning to eat into profit margins. 

Nonetheless, I see this as a fundamentally short-term problem that should subside in the near future.      

Indeed, profit expectations for 2022 have risen to £145m from £140m. In addition, international sales grew 33% for the 13 weeks to 1 January.

Exhibiting strong growth, this business could be a great addition to my portfolio.

Growth stock #2: AJ Bell

The second firm is investment company AJ Bell (LSE:AJB). For the years ended September, between 2018 and 2021, revenue increased markedly from £90m to £145.8m.

Furthermore, profit before tax nearly doubled from £28m to £55m. Meanwhile, EPS rose from 5.76p to 10.71p. This means AJ Bell has a compound annual EPS growth rate of 16.78%. 

It should be noted, however, that past performance is not necessarily indicative of future performance. 

The company has also branched out into online trading platform products, as these became increasingly popular during the pandemic. It is due to launch its commission-free trading app, Dodl, in the middle of 2022, charging 0.15% per annum. 

It also grew its customer base by 27% in the three months to 31 December 2021. 

In its 2021 annual results, it had 87,500 new customers and grew profits by 13%. This resulted in a 13% increase in the dividend, to 6.96p per share.

While these results are encouraging, I am unsure about AJ Bell’s ability to maintain this standard as we return to pre-pandemic normality. It currently trades at 299p.

Overall, these are two exciting LSE growth stocks. With strong earnings data, both firms are expanding in a controlled fashion. They could be excellent additions to my portfolio and I will be buying shares in both businesses soon.  

However, they can also come with more risk than larger blue-chip stocks. Unlike their larger peers, smaller companies may not have the checks and balances in place to detect and deal with significant challenges. 

As such, I am not willing to include any old penny shares in my portfolio. I am looking for corporations with substantial competitive advantages and robust balance sheets. 

Both of the companies outlined below exhibit these qualities. I would not hesitate to buy both for my portfolio with an investment of £1,000 today. 

Penny shares to buy for growth

As the UK economy begins to recover from the pandemic, labour shortages are becoming a significant issue for many companies. I think this is the perfect environment for the temporary staffing operation Staffline (LSE: STAF). 

This micro-cap stock has lost over £100m during the past four years. Still, analysts are expecting a profit in 2021 and for 2022. Based on current estimates, the stock is trading at a forward price-to-earnings (P/E) multiple of just 7.7. Management has also cleaned up the balance sheet in recent years. The group now has a net cash position. This gives the company lots of financial flexibility to capitalise on opportunities as they emerge. 

Unfortunately, this is a highly competitive market with razor-thin profit margins. Overcoming these issues will be some of the biggest challenges the company has to deal with going forward. 

Despite these headwinds, I would buy the outfit for my £1k portfolio of penny shares today. 

Consumer demand 

Premier Foods (LSE: PFD) is another company that has been working hard to rebuild itself over the past couple of years. The business made a series of strategic missteps before the financial crisis, and it has taken it more than a decade to return to growth.

With a strong balance sheet and reconfigured pension plans, the establishment is in a better position than it has been for over 10 years to capitalise on growth opportunities.

City analysts are expecting earnings to grow by a double-digit percentage in the 2022 financial year, and further growth is expected in 2023. A key area of development for the business is the international market, where management is investing significant sums to capture market share. 

This is a great opportunity, but it could also be a significant risk. If the company expands too far, too fast, it could be an expensive mistake. This is something I will be keeping an eye on over the next few years. 

Even after taking this risk into account, I would be happy to acquire Premier for my portfolio of penny shares with £500 today. In a portfolio alongside Staffline, I think the company will help me build exposure to two fast-growing sectors of the economy. 

The full economic consequences of the tragic events in Ukraine will take some time to become apparent. And so the impact of the conflict on UK shares is difficult to accurately ascertain. But here are two top penny stocks whose recent share price falls could make them too cheap to miss.

Taking a close look

It’s quite possible that Lookers (LSE: LOOK) will find the going tough as the cost-of-living crisis worsens. Sellers of big-ticket items like cars are particularly vulnerable to falling consumer spending power, of course. So the company’s share price has slumped recently and it now trades on a forward price-to-earnings (P/E) ratio of 7.7 times.

I believe that this recent weakness represents a great dip buying opportunity. Sales of electric vehicles in the UK continue to rise strongly as concerns over the climate crisis intensify and people switch their old polluting vehicles for greener alternatives. That’s in spite of consumer price inflation currently rising at its fastest rate for three decades. Sales of battery-powered vehicles leapt almost 200% year-on-year in February, latest data shows.

Lookers sells vehicles across more than 30 brands, giving it solid exposure to the electric car revolution. And I think sales of its low-emissions vehicles could receive a further boost from soaring petrol and diesel prices. Average unleaded prices have just hit fresh record highs of 155p per share. They look set to keep climbing too as the war in Eastern Europe hits oil supplies, boosting demand for electric vehicles still further.

A tasty penny stock

When consumer spending comes under pressure, brand power is worth its weight in gold. This is why I think Premier Foods (LSE: PFD) could be one of the best penny stocks to buy today. The food manufacturer owns brands like Mr Kipling Cakes, Bisto gravy, and Homepride cooking sauces. Shoppers stay loyal to these decades-old brands even when economic conditions worsen.

The Premier Foods share price has plummeted, though, following the awful events in Ukraine. This is in large part due to fears of rising ingredients costs and what this could do to margins. For example, wheat — a critical ingredient in Premier Foods’ cakes — has soared to record highs in recent days. And they could of course keep climbing. Russia and Ukraine collectively account for more than 25% of global wheat exports.

Still, Premier Foods’ mega-popular brands should leave it better placed than most food producers to pass these increased costs on to its customers. I think this is something that recent heavy share price falls don’t reflect. Today Premier Foods changes hands on a forward P/E ratio of just 8.9 times. This looks like a bargain in my book.