Should news the UK faces a sharp recession mean investors should avoid buying anything for their Stocks and Shares ISAs? Not in my opinion.
Today, I’m going to cover three purchases I’ve recently made and why. In spite of the likely economic gloom ahead of us, I think all could prove great additions, over time.
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The first stock has been on my watchlist forever. Irn-Bru owner AG Barr (LSE: BAG). To be sure, Barr won’t escape the economic impact of the coronavirus lockdown. With pubs, bars and cafes closed, it’s been dependent on supermarket sales to keep going.
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This, however, should prove a short-term blip. The company is sound and has a great portfolio of brands, including Funkin cocktail mixers and Rubicon to support sales of its legendary orange beverage. Returns on capital employed are reassuringly decent and the firm’s balance sheet also looks solid.
Barr’s stock rarely goes on sale. Having more than halved in value over the last year, however, it’s changing hands for less than its average valuation over the last five years (18 vs 21 times forecast earnings).
No investment is without risk, and current predictions could still prove optimistic. Nevertheless, I suspect the margin of safety is such that now is the time to at least start adding it to my ISA.
Down but not out
While AG Barr is a new holding, I’ve also been adding to my existing stake in high street baker and FTSE 250 member Greggs (LSE: GRG).
Some may think this a strange choice, particularly if a second coronavirus wave puts an end to the lifting of lockdown restrictions. There’s also a possibility revenue and profits don’t recover as swiftly as first thought, due to the prolongation of social distancing.
But let’s get real. Greggs surely has a better chance of coming out of the coronavirus storm than most on the high street. A firm selling low-ticket baked treats is unlikely to be impacted as much as those selling discretionary items. A new TV or phone purchase can be postponed. I’m not convinced people will apply the same rationale to a steak bake. Now factor in Greggs’ strong brand, history of savvy marketing, and excellent free cash flow.
This is why I expect to continue holding this company in my ISA for many years to come.
Gaming for growth
A final ISA purchase I’ve made is actually a fund. Notwithstanding this, I do think it could generate returns to rival the stocks mentioned above.
The VanEck Vectors Video Gaming and eSports UCITS ETF tracks the performance of 25 companies. All derive a large proportion of their revenue from this hot sector. As I’m sure you know, gaming has been immensely popular over the lockdown period.
Although small, the fund is arguably a safer option than buying a single developer. The latter’s fortunes can be highly dependent on only a few titles at any one time. With this ETF, an investor can mitigate that hit-and-miss risk.
At the end of April, the VanEck fund had returned 27.5% since its inception last June. It is, of course, unlikely to deliver this consistently. Nevertheless, the industry’s strong growth prospects make me sufficiently bullish to add it to my ISA. The fund has a total expense ratio of 0.55%.
