History isn’t always a reliable guide to the future. But in my experience, companies with a history of strong profitability and shareholder returns are more likely to perform well in the future, even during tough times. I’ve selected three shares today that I think are among the top stocks to buy today for investors building a long-term portfolio.
A family favourite
My first pick is soft drink firm Britvic (LSE: BVIC), whose UK brands include Fruit Shoot, Robinsons, J2O, Purdey’s, and Tango. The firm also produces drinks for PepsiCo under licence in the UK.
I don’t know anyone who hasn’t consumed at least one Britvic product at some time in their lives. For many people it’s a daily event.
You might expect sales to have held up well during lockdown, but unfortunately the group’s exposure to the pub and restaurant trade means sales fell by 16% during the three months to 30 June.
The Britvic share price is down by around 12% this year, reflecting this weakness. However, management say they have seen strong growth in sales for at-home drinking and have gained market share. Over time, I expect the hospitality trade to recover too, fuelling continued growth.
Looking ahead, Britvic shares trade on 14.5 times 2020–21 forecast earnings, with an expected dividend yield of around 3%. I see this as a top stock for investors looking for defensive picks.
Kitchen upgrades could be popular
Lockdown and home working has turned many more people into enthusiastic home cooks. I think that could translate into healthy demand for new kitchens over the coming months.
The latest figures from kitchen specialist Howden Joinery (LSE: HWDN) seem to support this view. Although sales fell by 29% during the first half of this year, the company says that during the four weeks to 11 July, sales were slightly ahead of the same period last year.
The company says that a lot will depend on its key trading period in late autumn. It’s too soon to be sure if Howden will be able to avoid a recession-led slump in sales.
However, I’ve admired this business for many years. It benefits from strong management, high profit margins, and has delivered steady growth – the stock has doubled since 2013.
Howden’s share price is down by nearly 20% so far this year. Although the shares still trade on 18 times 2021 forecast earnings, I think this could be a fair price for a good business.
A top stock for bankers
My final pick is City merchant bank Close Brothers Group (LSE: CBG). This FTSE 250 firm has been in business for more than 140 years and specialises in business lending.
Close Brothers’ profitability is significantly higher than the big high street banks, thanks to its different lending profile. The group’s net interest margin was 7.6% during the first quarter of this year. The equivalent figure for Lloyds was 2.8%.
Close Brothers’ share price performance reflects this. The group’s shares have fallen by 13% over the last year, compared to a drop of nearly 50% for Lloyds.
The bank expects bad debts to rise over the coming year but is confident these can be handled. I’m confident too – Close Brothers has traded successfully through many recessions, including the 2008 financial crisis.
As a long-term investment, I see this as one of the top stocks in the banking sector.
