Why I’d Invest All My Savings In BP plc, SABMiller PLC, ARM Holdings Plc, Unilever plc & ASOS Plc Right Now

BP plc (LON:BP), ARM Holdings Plc (LON:ARM), ASOS Plc (LON:ASC), SABMiller (LON:SAB) and Unilever plc (LON:ULVR) are under the spotlight.

| 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.

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.

Nine months ago I argued in favour of a portfolio with a weighted beta of 0.72, comprising the following six stocks: 25% of ARM Holdings (LSE: ARM), 12% of Diageo, 18% of SABMiller (LSE: SAB), 30% of BP (LSE: BP), 10% of National Grid and 5% of ASOS (LSE: ASC). 

Here’s how it has performed so far, and why BP and ARM will continue to make up to 55% of my virtual portfolio. 

A Balanced Portfolio

The value has increased by 9% over the period, for an all-in pre-tax return of about 12%, including dividends and excluding costs, since 9 June 2014. The average yield of the portfolio is roughly in line with that of the market, but the FTSE 100 is up only 2% over the period. 

The rise in ARM has been offset by the fall in BP, but I’d retain exposure to both stocks in the same amount. The former is a strong growth play, while the latter is a decent recovery story. 

While I am not too disappointed with the performance of SAB, ASOS and National Grid, I think Diageo is not a stock I’d be happy to retain. Instead, I’d replace it with Unilever (LSE: ULVR). 

Remember: we are after steady, long-term gross returns in the double-digit territory on an annual basis. 

Diageo & SAB

I am not one of those who argue in favour of changes in a portfolio every year or on a quarterly basis, but I am glad to make an exception because Diageo looks a bit expensive, and I am not convinced its management team is doing all it can to deliver value to shareholders.

Last year, I thought Diageo would offer more value than SAB, but the latter’s performance has convinced me that Diageo is not the safest bet in the sector.

SAB has been the subject of recurrent takeover talk for a long time, and its shares have been boosted by takeover rumours in the last 18 months: I don’t buy into an imminent change of ownership, to be honest, and I am betting instead on a recovery in emerging markets and SAB’s strong fundamentals.

As far as M&A talk is concerned, however, it’s more likely that SAB will make another attempt at striking a deal with Heineken, which would benefit its own valuation in the short term. 

Unilever

Elsewhere in the consumer space, Unilever is not incredibly cheap but its stock offers a higher yield than that of Diageo, and its valuation will likely continue to dictate a premium because investors will likely pay up for its quality earnings, particularly if volatility springs back. That means Unilever’s trading multiples will likely rise over time.

I am a big fan of Unilever’s portfolio of products, and its management team boasts a strong track record. On top of that, targeted divestments will boost value in the next 18 months, in my view. 

BP, ARM & ASOS

BP continues to be a rather attractive investment proposition right now, although it’s down 10% since June last year. It will benefit from rising oil prices, which I think are likely from the third quarter onwards. I am cautiously optimistic about its dividend policy, too. BP could comfortably rise above 500p, where it traded in the spring of 2014, and I would be surprised if it disappointed investors in its upcoming results. 

I still like ARM, too, in spite of a terrific rally for its stock in recent months — a price target in the region of £14 is justified based on its realistic growth projections for earnings and dividends, which combine with a rising market share for its core products. 

Finally, ASOS has been holding up pretty well in recent times, and its shares have recovered from a terrific plunge in 2014. They look expensive, but there are a few reasons why shareholders may want to stay invested. Of course, volatility in its stock price could be just around the corner, particularly if operating profit margins remain under pressure or fall, but that’s why only 5% of the portfolio would be invested in this high-risk stock.

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.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. The Motley Fool UK owns shares of ASOS and Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »