UK shares had a rough year in 2023, but I’m optimistic this year will be better. In fact, 2024 could be one of the best years since Brexit.
Already this year, unemployment has fallen, inflation is cooling, and rates cuts are on the horizon. The economy is projected to rise as well.
And yet the FTSE 100 and FTSE 250 have both treaded water in January and February, so I’m hopeful there are bargain UK shares to be found before a strong 2024 performance.
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Here are three at the top of my watchlist.
Diversified Energy
When most people see a 15% yield or more, they run for cover before the dividend gets slashed.
And yet, Diversified Energy (LSE: DEC) – an Alabama-based oil and gas firm – offer a 29.16% dividend yield along with the cash flows to sustain payments in future years.
Of course, there’s no such thing as a free lunch and the company faces serious challenge to its existence.
Its business model of buying aged wells and squeezing them dry has drawn the ire of the Democrats, who accuse the company of not cleaning up properly.
The threat of fines or higher spending to retire wells has sent the market value to $563m while net income in the first half was $631m.
The shares are down 23% year to date and I’m keeping an eye on a possible turning point.
BAE Systems
The spring budget was eye-catching for various reasons, but one overlooked detail was what Grant Shapps called “the largest defence budget in history” as spending rose £1.4bn to £55.6bn.
The Defence secretary is pursuing a 2.5% GDP spend on defence “as soon as possible” and his comment came hot on the heels of his German counterpart calling for up to 3.5%.
Of course, this is hardly a desirable state of affairs, but I think we’re waking up to the reality that governments can’t shirk military spending when leaders like Putin exist.
As the UK’s largest defence firm and the only one on the FTSE 100, BAE Systems (LSE: BA.) will likely be at the heart of much of the outlay.
BAE has a record order book, the shares are up 12% in 2024 already, and I reckon there’s plenty more growth in store.
As for risks, BAE trades at 21 times earnings, which sounds pricey at close to double the FTSE 100 average.
Overall though, I’m happy to hold the shares and may buy more.
Hargreaves Lansdown
One of the headlines of the budget was the introduction of the British ISA – a further £5,000 tax-free investing allowance so long as the money is ploughed into UK shares.
Hargreaves Lansdown (LE: HL) shares jumped a couple of percent on the news, perhaps due to the British ISA’s possible impact on its investing platform.
Will it have much effect? Well, the British ISA only helps those stuck investing just £20k a year rather than £25k. I’m not sure that’s too many of us.
But more broadly, Brits are investing now more than ever. An estimated 5m UK citizens started investing in the last year, bringing the total to 27m.
Hargreaves Lansdown shares are up 5% for the year and trade at 12 times earnings. The shares might be my next purchase.
