As the UK recovers from the effects of several complete lockdowns, the economy is bouncing back strongly. The FTSE 100 index is up 14.52% in the last year and has been rising steadily since the pandemic-driven slump. I believe this bull run could continue well into next year (as long as the pandemic plays ball), making it a great time to think about stable investments. With that in mind, here are the three stocks I’d buy in 2021 for long-term returns.
Cashing in on the ‘grocer boom’
Tesco (LSE: TSCO) is the UK’s most popular supermarket chain with a whopping 27% market share. The grocer made a steady start to 2021 and stock prices remained stable after a £4.99bn dividend payout and subsequent share consolidation in mid-February following the sale of its Asian operations for £8bn.
News of a private equity takeover bid for rival supermarket Morrisons caused a spike in the share prices of most large UK supermarket chains. Tesco stock rose 1.7% and has seen a steady increase since, with its share price hitting a three-month high of 236p last week.
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And the board has predicted 20% growth in operating profits by the end of 2021, which could increase the already robust dividend yield of 4.2%.
The most concerning factor for me are the razor thin margins of in the supermarket industry. The competition could force further price cuts from Tesco, reducing profits. But the renewed focus on the UK market, increasing dividend yield, and attractive entry price puts Tesco at the top of my watchlist of the best stocks to buy this year.
Entertainment industry pick
ITV (LSE: ITV) remains a solid pick for me too when I look at long-term returns. With popular programming returning to terrestrial TV, the broadcaster has seen improved results in the last six months. The company is also seeing an increase in cash flow with the return of advertising revenue, which is predicted to rise between 85% and 90% in June, compared to anaemic 2020 levels.
Its move into online video services with ITV Hub is a shrewd one that shows me the company is future-focused. This product saw its user base grow by 5% to 33.6m last month. And while the company would again be subject to production restrictions if the current spike in Covid-19 cases leads to another lockdown, I remain optimistic. I think ITV could see a steady increase in viewership and ad revenue, qualifying it for my list of the best stocks to buy in 2021 for long-term returns.
Drinks giant
And just as entertainment is back on the agenda, so is socialising, which should help one company I’m watching keenly in the food & beverage space — Diageo (LSE: DGE). The alcoholic drinks business has seen sustained growth since the gradual lifting of restrictions. Restarting sporting events, festivals and other group/social occasions has caused a spike in the share price too, with the company seeing a 17.92% rise in the last six months and almost a 24% increase in the past year.
The next easing of restrictions means nightclubs can resume operations, which could see a further surge in sales. That said, it could also mean a surge in Covid cases, so the business isn’t risk-free. However, Diageo still earns a spot on my 2021 buy list.
