As much of the UK moves into Lockdown 2.0, I think I should be focusing on investments that are relatively safe. That means companies that are unaffected by lockdown and that have strong balance sheets. These kind of shares are less risky and that’s why I think they are the best shares to buy during extreme situations.
Supermarket sweep
The supermarkets have emerged as relative winners from the pandemic and lockdown. In the UK, none come bigger than Tesco (LSE: TSCO). As non-essential shops, bars and restaurants have been forced to shut their doors, our spending has inevitably shifted to the supermarkets. And online delivery means that we don’t even need to leave our homes.
Tesco’s first-half results (up to end of August) showed that group revenue rose 7%, largely due to increased food sales. Sales rose strongest during the first lockdown period back in the spring, which bodes well for the current lockdown and any more thereafter. Its online business seems to have benefited the most, with second-quarter (spring) sales surging 90% from the year before.
Tesco is in process of selling its Thai and Malaysian businesses. This should bring in around £8bn, of which £5bn will be returned to shareholders in the form of a special dividend. Looking at the current share price, that implies a 20%+ payout. And that’s on top of the current dividend yield of around 4%. Quite frankly, that seems too good to be true. It’s what makes it, in my opinion, one of the best shares to buy now.
First-half net profits were up 44% from last year, at £465m. Impressively, that’s after over £500m of Covid-related expenses. With these such costs already incurred, and with greater experience of the Covid operating environment, margins should improve in the second half. Directing expenditure away from its clothing business and towards food should improve profits further. Taking all that into account, I think Tesco shares look really attractive.
Consumer staples among the best shares to buy now
Another safe company in the current climate is McBride (LSE: MCB), I feel. It manufactures a range of cleaning and personal care products, from hand sanitiser and bleach, to aerosols and dishwasher tablets. As well as selling products under its own brands, the group also produces products on behalf of other companies.
The pandemic and subsequent focus on hygiene have been a real boon to the company’s sales. Bleach and surface cleaning sales rose by 15% in the six months to the end of June, while sales of dishwasher tablets and liquids were up 13%. With there being little evidence of the pandemic abating any time soon, I think this focus on hygiene is here to stay. That should boost McBride’s revenues for the foreseeable future.
£10m worth of exceptional items dragged full-year profits below those of the year before. But without these, profits would have been much healthier and the shares would actually look cheap. A new company strategy centres around increasing revenues to €1bn by 2025. That’s 27% above last year’s revenues. If this growth materialises, then it should feed through to the bottom line. To top it off, McBride also plans to buy back up to 10% of its own shares in the next year. And that’s why I think it’s another one of the best shares to buy now.
