There are a lot of things I could buy with a spare £300. One option is to invest that sum in two UK stocks inside my Stocks and Shares ISA and potentially grow that money over the long term.
A UK housebuilder stock
First up is Barratt Developments (LSE:BDEV). It’s a housebuilder, and like all such firms, its share price has been struggling since the end of 2021. Recently, the Bank of England’s interest rate rises has been hurting developers. The company itself has said it will construct fewer homes this year as mortgage rates and the cost of living crisis drive homebuyers away. Indeed 2023 and 2024 are anticipated to be the most difficult years for UK housebuilders since the great financial crash.
But I think that at this price, the stock is a compelling value proposition so long as I’m clear that things could get worse for the company before they get better. Barratt trades at a forward price-to-earnings (P/E) ratio of 9.2. That’s low for its industry and compared to its index, the FTSE 100. Its forward dividend yield for 2023 is 7.38% and for 2024 it’s 5.28%, based on analyst estimates. If things really do turn sour, Barratt is in a good pace. Its balance sheet is strong. Its cash and cash equivalents position is over £1bn, which dwarfs its £254m in long-term debt.
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A FTSE 250 miner
My second UK stock hammers home the need for that £300 to be spare because it’s Ferrexpo (LSE:FXPO) and it faces multiple challenges. This company is a vertically integrated iron ore pellet producer. However, its operations are in Ukraine, and there are being disrupted by Russia waging its war there. In 2022 Ferrexpo produced 6.1m tonnes of iron pellets. That was 46% lower than the previous year.
In September, a Ukrainian appeal court ruled that a 40% stake Ferrexpo has in a subsidiary was invalid. It ruled that it had to be transferred back to former shareholders. In December, a (now) non-executive director was arrested in France at Ukraine’s request on suspicion of embezzlement and money laundering, although these charges supposedly have nothing to do with Ferrexpo. Then, early this month, a subsidiary of the firm had its bank accounts frozen as part of a probe into the potential underpayment of iron ore royalties from 2018 to 2021.
Risk and reward
Given that the stock price is 50% below where it was at the start of 2022 it is tempting to think that all the risk is priced in. But, things could get worse and further slides are possible. However, if the company can get back to where it was in 2021, then things look good. Its revenue growth of 20.6% per year on average was impressive, as were its historical operating margins of around 40%.
Investing a spare £300 across these two stocks at a small percentage of a wider portfolio is something I could do, but should I? I think the risk is worth the long-term rewards I can reasonably foresee. But I don’t have to act on every idea I have immediately, and something is holding me back here. When that happens a period of watchful waiting usually settles the nagging doubt one way or another.
