Being an effective long-term investor is fundamentally about buying shares in quality companies for less than their value. But in today’s uncertain environment, finding the right sector or trend can seem impossible. To overcome this, I prefer to own ‘all-weather companies’ that can perform during both favourable and unfavourable market conditions. I have identified three UK shares I am considering buying, with the fundamentals to perform regardless of what the next decade has in store.
GSK
As we all experienced in recent years, maintaining healthcare is always going to be essential, regardless of how the economy is performing. The development of vaccines, in addition to manufacturing pharmaceutical products, is going to be a fundamental part of this. With a growing and ageing population, it is going to be an increasing area of focus over the next decade.
To capture this growth, I like the look of GSK (LSE:GSK), operating across four key areas:
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- Pharmaceuticals;
- Pharmaceuticals R&D;
- Vaccines;
- Consumer Healthcare.
The company is priced below the sector average price-to-earnings (P/E) ratio of 13.9 at 12.8, and could be 60% undervalued based on a discounted cash flow model at a current price of 1,405p versus fair value of 3,498p.
One area of concern is an elevated level of debt. However, with this gradually coming under control, and experienced management at the helm, I expect this will be an opportunity for me to buy shares at a discount.
Legal & General
On the same trend of products and services needed regardless of market conditions, the insurance sector offers interesting opportunities for investors.
I like the look of Legal & General Group (LSE: LGEN), diversified to provide several agile income streams:
- Retirement;
- Investment Management;
- Capital;
- Insurance.
In addition to a massive 7.2% dividend yield, the company also looks undervalued when considering future cash flow. With the current share price of 260p compared to the fair value of 651p, there could be a 60% upside.
Companies within the financial group can be difficult to understand and monitor. However, they often benefit from more challenging economic environments, consequently being an effective way to balance risk.
United Utilities
The third all-weather company I like the look of is United Utilities (LSE: UU). It provides the water and wastewater services in the UK. Utilities are never the most exciting of investments, but they are always in demand.
United Utilities has a P/E ratio far less than the sector average of 28.9 at 14.3, and has future earnings growth of 32% — far higher than the market of 10.3%.
As might be expected, growth expectations are well priced in. So United Utilities might offer less opportunity for a dramatic rise in share price, but with a generous dividend of 4.12%, it could offer a stable second income for me.
Conclusion
Regardless of what the next decade has in store, owning growing companies with reliable demand, strong fundamentals, and excellent management is a recipe for success. I like the look of these companies and will look to add them to my portfolio at the next opportunity.
