An experienced investor once suggested that the best shares to buy now should be the ones I already own. If they’re not, then why do I own them? Although I don’t apply this rule blindly to my portfolio, I do think there’s some truth in this idea.
Today, I want to look at two UK shares I own that I’d buy today.
The picture is improving
It’s been a tough few years for television group ITV (LSE: ITV). The broadcaster has been battling falling advertising spending and the growth of streaming television services like Netflix. 2020 should have been a year of progress, but expectations were slashed when the coronavirus pandemic disrupted filming schedules and caused ad revenue to slump.
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A year later, things look better to me. Although filming disruption continues, advertising spend in the final quarter of 2020 was expected to be higher than the same period in 2019. ITV also managed to protect most of its market standing during the nine months to 30 September, maintaining a 22.2% share of UK television viewing.
ITV’s share price has doubled from the lows of 50p seen last year. But the shares are still down by nearly 20% on one year ago. Broker earnings forecasts put the stock on 11 times 2021 earnings, with an expected yield of nearly 5%. I think that’s cheap for this business.
I’m still concerned about the competitive threat from streaming services and online advertising. But ITV’s online presence is growing, and I believe the group’s business can adapt. At current levels, I see ITV as one of the best shares to buy now.
This UK share has beaten supermarket stocks
Discount retailer B&M European Value Retail (LSE: BME) sells a mix of food, household items and other basic goods. The business was classed as an essential retailer and B&M stores have remained open throughout the last year.
The company’s sales surged, much like supermarkets. However, one big difference is that B&M’s profit margins are much higher than those of supermarkets. Even before last year’s sales growth, B&M’s operating profit margin averaged about 8.5%. The big supermarkets average about 3%.
Higher profit margins generally mean that when sales rise, profits rise more quickly. B&M’s pre-tax profit rose by 122% to £236m during the six months to 26 September.
What I don’t know yet is how much of this increase will be ‘sticky’. Will the firm’s new shoppers stick around after lockdown, or go back to shopping elsewhere? City analysts are expecting a small drop in profit next year, as sales stabilise after the pandemic.
However, B&M’s management reckon its low prices and fast-changing selection of stock means customers stay loyal and return regularly. So far, they seem to be right. Sales have doubled since 2016. The group is continuing to open new stores across the UK, moving into more upmarket areas.
B&M shares have risen by 80% over the last year and now trade on 18 times 2021/22 forecast earnings. That seems fully priced to me. But this business has been very successful in a tough year. I think it could continue to grow.
On balance, I still see B&M as one of the best shares to buy now. I intend to hold onto my stock.
