£2k to invest? 2 investments I’d make in a Stocks and Shares ISA this year

Hunting for the best US and UK stocks to buy? Here are two industry leaders I’m tempted to buy in my Stocks and Shares ISA in 2023.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young female couple boarding their plane at the airport to go on holiday.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the stock market beginning what could be an explosive recovery, I’ve been on the prowl for new opportunities for my Stocks and Shares ISA. And two companies in particular have caught my attention this month. In fact, I’m currently considering each carefully for my next potential investment.

The company behind the cloud

Cloud computing plays a pivotal role in modern technologies and services. Microsoft Azure and Google Cloud are often some of the first businesses that pop into investors’ heads when talking about this space. But there’s another firm working behind the scenes that allows for all this technology to exist in the first place.

Arista Networks (NYSE:ANET) builds the hardware that goes into the data centres. Its ethernet switches and routing devices provide the critical bandwidth needed for high-speed internet communications. And with its technology consistently outperforming that of its peers, the firm now controls roughly 42% market share – a trend that continues to move upward.

With management switching tactics to focus on securing hyperscale customers like Microsoft Azure, revenue and earnings growth has consistently outperformed analyst expectations. And over the last five years, both have been growing at an annualised rate of over 20%. That certainly sounds like a nice potential addition to my Stocks and Shares ISA.

However, this strategy does have a big caveat. With the bulk of cash flow originating from just a handful of enterprise customers, there is a high level of revenue concentration. In fact, the income from just Microsoft and Meta Platforms represents roughly 40% of the top line. Suppose one of these customers decides to swap to a competitor? In that case, it could have dire consequences for Arista’s financials.

Having said that, the cloud hardware arena is fairly complex, with very few competitors capable of operating on the same scale. Therefore, while this risk is severe, the probability of it occurring seems low, in my opinion. That’s why I’ve already been bolstering my existing position.

The best UK dividend stock?

While the UK doesn’t have a wide variety of technology stocks, it’s still home to many high-yield dividend stocks. And Safestore (LSE:SAFE) is looking increasingly attractive, in my eyes.

The firm owns and operates a network of self-storage facilities across the UK and Western Europe. Leasing storage space is hardly exciting compared to powering the internet. However, that doesn’t mean it can’t be lucrative. In fact, the steadily increasing demand for extra storage space over the last decade has allowed this dividend stock to be one of the best-performing shares on the London Stock Exchange.

Since 2013, the company has delivered a total shareholder return of roughly 780% – 400% of which came from dividends alone!

Building a commercial real estate empire obviously isn’t cheap. And the group currently has around £795m of debt & equivalents, with interest payments placing pressure on margins. As the Bank of England continues to hike rates, this pressure will likely mount, potentially compromising shareholder payouts.

However, with an interest coverage ratio currently sitting at 10.8, I don’t think there’s any immediate cause for concern. And now that management has just launched a joint venture to expand into Germany, there could be far more dividend growth to come.

That’s why I think Safestore could be an excellent income addition to my Stocks and Shares ISA today, once I have more capital at hand.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has positions in Arista Networks. The Motley Fool UK has recommended Arista Networks and Safestore Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »