The Stocks and Shares ISA deadline for 2020/21 comes at midnight on April 5. I’ll let you into a secret, I’m not planning on staying up for it! The ISA allowance means I can use £20,000 in any year within the ISA and any stocks I buy in that wrapper are shielded from tax. This could be dividends, or profit if I sell a stock that I bought. I currently do have leftover allowance to use, so here’s a FTSE 100 stock I’m looking to buy before the ISA deadline.
Next in line
Next (LSE: NXT) is a well-known British fashion retailer. Over the years, it’s expanded into homewares and beauty products. The share price has performed well over the longer term, up 25% over one year and 42% over two. Personally, I think this could be a good stock to buy now ahead of the ISA deadline.
Next has positioned itself at the lower-to-middle price end of the market (with higher price ranges for premium beauty) and its online strength means it has done well during the pandemic. But coming out of the Covid period, I think we could also see a sweet spot for the brand. With disposable income rising, I feel consumers will have more social events to go to, and will continue to buy its fashion offer, as well as patronising its still-new premium beauty chain. Its homewares could also prosper as consumers now working from home by choice continue to improve their living spaces.
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I think we’re already starting to see the good news for the firm. In the Q4 trading period, full price sales were down 1.1% versus 2019, much better than the expected guidance of -8%. Another indication of this is the increase in new customers. Active online customers were up 24% year-on-year. I think this could continue well into the rest of the year, so would look to buy the stock ahead of the ISA deadline
Pros and cons
Another reason why I like Next is its robust financials. The pandemic has hit retailers hard, with many struggling with cash flow issues. Next has managed its finances well. Credit sales reduced significantly, helping overall cash flow. It also managed to increase the balance paid by existing credit customers. It noted that “in December last year customers paid off 12.2% of their balance, this year they paid 15.5%, so the proportion of balance paid increased by +28%.”
Along with better cash flows, its earlier Q3 trading update commented that net debt at year-end was due to reduce by £487m to £625m. Again, considering the difficult trading environment during 2020, this impresses me.
But if I did buy the FTSE 100 stock before the ISA deadline next month, what are the risks? One risk is that Next has a large physical presence of 500 UK stores. Yet with the amount needed for business rates, along with low footfall, Next might have to decide that physical stores simply aren’t worth the costs. In the short term, this could be seen as a negative. It also has risks that come with any business based on fashion trends.
But on balance, I’d still look to buy Next as a FTSE 100 stock for my ISA right now.
