The UK stock market has been a difficult arena in the last year. While US markets have thrived despite the impact of the Covid-19 pandemic, the FTSE 100 hasn’t fared so well. The UK’s primary stock index is down 10% compared to this time last year.
I still see value in buying UK companies in a Stocks and Shares ISA though. A Stocks and Shares ISA allows me to invest my money in the stock market, rather than having it sit as cash in my bank account.
UK citizens have an allowance of £20,000 for the tax year in which they can receive tax breaks. While there is more risk involved than in a Cash ISA, Stocks and Shares ISAs can be a good way to get started in the stock market.
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But what UK shares would I add to my ISA today? While the FTSE 100 is down in the last 12 months, I think these two companies could represent a buying opportunity.
BAE Systems
Defence contractor BAE Systems (LSE:BA) has come through the pandemic relatively unscathed in comparison to fellow FTSE 100 constituents in terms of sales, with no major sign of a reduction in demand for its products from the governments it sells to.
BAE has consistently been one of the top dividend yielders in the index, and that has remained so throughout the pandemic. The payout currently yields 4.71% against a share price of 490p and is an attractive prospect for income investors.
It must be noted, however, that the shares have slipped over the last year and generally don’t have a history of strong growth. In the last 12 months the company’s share price has declined 27%.
There is risk involved in that if a handful of countries were to reduce their defence spending, BAE’s revenue would be adversely affected.
But the indications are that that is unlikely to happen. If some of the big defence spenders were to cut costs at all, I would have thought 2020 would have been the time to do it. Spending remained strong in the UK, US, and Saudi Arabia.
BAE’s strong position in the market and reliable dividend makes me confident that the share price can return to growth over the next few years.
InterContinental Hotels Group
Despite the huge reduction in number of people staying in hotels over the last year, InterContinental Hotels Group (LSE:IHG) has managed to see its share price grow over the last year.
The shares are worth 4% more than they were 12 months ago. The conception and rollout of the Covid-19 vaccine programme has helped travel and leisure stocks rally in recent months.
With the news that around one-third of the UK population is now vaccinated and a roadmap for opening up the economy announced, there are signs of a return to normality in the sector.
That said, it may take quite a bit longer for the vaccines to be rolled out to Europe and further afield, which would have a negative effect on IHG’s profits and share performance.
The group, which owns hotel chains Regent and Crowne Plaza, announced a 48% reduction in revenues in a trading update this week. The operating loss was $153m against a profit of $630m a year previously.
