When it comes to investing and managing wealth, it’s easy to feel overwhelmed by the near infinite amount of financial products that the internet has put at our disposal. Within a matter of minutes and a few clicks, we can move our money to emerging markets, change our currency or even buy a house in Somalia.
And while choice is a great thing, too much can be bad, especially to a novice investor.
Sometimes, it makes more sense to invest in what you know well. There’s no need to buy shares in obscure companies that nobody knows about.
So today, we are going to be looking at just 3 UK stocks you should consider buying if you have money sitting idly in the bank.
These are all blue-chip stocks, meaning they belong to big, established companies, often household names. This means they are relatively safe investments, almost guaranteed to make you some money without exposing your portfolio to too much risk.
So, without further ado, here’s my top 3 picks.
Unilever (LON: ULVR)
Though you may not recognize Unilever itself, you are probably familiar with many of its over 400 products.
Unilever is a British-Dutch transnational company in the consumer goods industry. Its products include food and beverages (about 40 percent of its revenue), cleaning agents and personal care products. It is one of the world’s largest consumer goods company and Europe’s seventh most valuable company. Unilever is one of the oldest multinational companies; its products are available in around 190 countries.
Axe/Lynx, Dove and Magnum, are just few of it’s very successful products sold worldwide. Since it began trading as a public company in the 80’s, Unilever has seen its stock price rise from as little as 600 pounds to over 4000.
If we look at a more recent period, say, the last 5 years, we can observe an increase in the stock price of over 75%.
But when it comes to Unilever, stock price is not all that matters, as this company has a long history of paying substantial dividends.
A person investing in Unilever right now, could expect a dividend return of at least 3%. This is already much better than what the bank is offering you.
Unilever’s history shows that it pays to look after all stakeholders and the company is continuing on this path today. That’s why the company seems to be a great investment for the next decade or so.
Even though the shares might look expensive today, as they trade at a forward P/E of 22.7 and yield only 2.8%, it’s unlikely that over the long term investors will lose money with the business.
To sum up, Unilever has a proven track-record of growth. Furthermore, its business is based on making affordable consumer products. It’s no coincidence that in the last decade, most of its profits have come from emerging markets and their growing middle class, a trend which is sure to continue in the near future.
Rio Tinto Group (LON: RIO)
Rio Tinto Group is an Anglo-Australian multinational and one of the world’s largest metals and mining corporations. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto, in Huelva, Spain, from the Spanish government.
Though this company is not a household name, it’s certainly a stock worth looking into. With a history of almost 150 years, Rio Tinto boasts some of the most attractive financial results in the last decade.
This mining company operates in four main products: aluminium, copper & diamonds, energy & minerals and iron ore.
As far as the evolution of the stock goes, after plummeting in 2008, along with markets worldwide, Rio Tinto PLC has been following an upward trend.
Through an aggressive expansion policy, including a handful of mergers and acquisitions, Rio Tinto has managed to maintain profitability and produce positive cash-flows from operations
Rio Tinto’s dividend yield of 5.9% indicates that as well as a high income return, the stock may be undervalued. It continues to have a competitive advantage versus peers when it comes to costs, and this could provide it with greater resilience should operating conditions change.
With the company’s dividend being covered around 1.7 times by profit, it seems to have a sustainable income outlook even if iron ore prices fall. And with a P/E ratio of around 11, it appears to offer a wide margin of safety.
Let’s face it, resources are limited, and by the laws of supply and demand, when supply can’t increase that much, prices will. Not a bad position to be in if you’re the one holding the resources.
Rio Tinto is a great stock to add some variety into your portfolio and a good way to hedge against the future.
Easyjet PLC (LON: EZJ)
In case you’ve been living in a cave, EasyJet is a budget airline from the UK. Based in Lutton, it has been offering affordable flights around the world since 1995.
Though this is a relatively young company compared to our first two picks, I definitely believe this to be a sound investment opportunity.
Air travel has increased massively in the last 20 years. Thanks to advances in technology, making fuel consumption more efficient, the cost of flying has plummeted. Additionally, people’s appetite for travel has increased a lot.
In a world where experiences are now being valued more than material goods, traveling is now the ultimate experience. We have the world in our reach and all that’s standing in the way, thanks to EasyJet, is a £50 airfare.
As for the company’s actual finances, EasyJet has seen 14.4% rise in revenue in the first quarter of 2017/18 to £1.14bn (compared to £997m over the same period in 2016/17).
Right now, EasyJet’s stock changes hands at 17 times earnings for the current year — a considerable premium to industry peers like International Consolidated Airlines and arch-rival Ryanair (at 7 and 14 times earnings respectively). When you consider the cyclical nature of airline stocks and the shadow of Brexit, such a valuation doesn’t appear all that attractive.
On the flip side, a PEG ratio of just 0.6 for the current financial year suggests that new investors would still be buying expected growth at a very reasonable price. Having fallen for the last couple of years, dividends are also expected to rise in the next year by roughly 8%, followed by a 34% rise in the following year. While hardly the biggest payer, the fact that EasyJet’s 2.8% forecast yield for the new financial year is covered twice by profits makes dividends look safer than some in the FTSE 100. Additionally, the company possesses a thoroughly robust balance sheet with £357m in net cash at the end of Q1.
While no investment is without risk and airlines won’t necessarily have an easy ride over 2018, today’s situation suggests EasyJet’s stock is still worthy of consideration for those who believe current momentum will continue.
And thus concludes our top 3 stock picks for today. These stocks have been selected overall for their potential, but also for their inherent safety. It seems very unlikely that any of these companies will go bankrupt in the near future.
Financial success is achieved by saving and investing, getting consistent returns, and in turn re-investing these returns. Don’t underestimate where you could be in 20 years with a little hard work and some smart decisions.