Since the start of the pandemic, the FTSE 100 has consistently underperformed other global financial markets, such as the S&P 500 and the Nasdaq. This has been due to the FTSE 100’s reliance on ‘old-economy’ companies, and a dearth of tech firms. Yet the sentiment has changed in 2022. Indeed, while tech stocks have been recording huge losses, UK stocks have been rising, with the FTSE 100 reaching its post-pandemic high. This rise has been aided by recent comments by JP Morgan that now is the time to buy “exceptionally cheap” London-listed shares. With this in mind, if I had £1,000, I’d use that money to invest in these two stocks.
A drinks giant
Diageo (LSE: DGE) has always been one of my favourite UK shares, with its reputation for excellence and significant brand loyalty. Indeed, Diageo owns over 200 different alcoholic brands, such as Guinness, Gordon’s, and Johnnie Walker. Due to the prominence of these brands, Diageo can rely on recurring sales, alongside some organic growth.
In fact, in the recent FY22 half-year results, Diageo managed to record net sales of £8bn, representing organic growth of around 20%. Organic operating profits were also to grow 24.7% to £2.7bn. Considering the worries surrounding cost inflation and supply chain constraints, these were incredibly strong results. It also allowed the company to increase the interim dividend by 5%, giving it a yield of around 2%.
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There are some risks with the shares, however. For example, cost inflation is likely to increase capital expenditures, and this may strain profit margins. Supply chain constraints may also limit the company’s ability to meet demand for its products. Nonetheless, I remain confident in the future. Indeed, over the medium term, from FY23 to FY25, it expects organic operating profits to grow sustainably within a range of 6% to 9%. The company’s share buyback programme, where it plans to return £4.5bn to shareholders, is also likely to have positive effects on the Diageo share price. For these reasons, Diageo is a ‘no-brainer’ buy for me.
A lesser-known UK share
In contrast to Diageo, Pan African Resources (LSE: PAF) doesn’t receive much attention. Despite this, the gold miner is performing excellently. In fact, in the most recent full year trading update, it recorded profits after tax of $74.7m, which is a 69% increase from the year before. It also sports a dividend yield of over 5%, far higher than most other UK shares.
Things are also going extremely well in the latest half-year. In fact, the company managed to produce 108,000 ounces of gold in the six months ending December 2021, which is a record amount for the company. It also exceeded previous guidance of 105,000 ounces. Further, the company announced a further reduction in net debt, a factor which may allow further increases in the dividend.
Despite this, PAF is extremely reliant on the price of gold, which is entirely outside of its control. This is a risk that faces the company. But that’s not stopping me from buying. Due to the current inflation rates, I feel that gold has further to rise. As a top-class gold miner, PAF is, therefore, another UK share I’d buy with £1,000.
