I have been looking for UK shares to buy for my portfolio next year targeting those with excellent long-term growth prospects. Two businesses really stand out to me as being undervalued right now, compared to their long-term potential.
I think both of these companies have substantial competitive advantages as well as robust business franchises, which should help them capitalise on the economic recovery as it takes shape.
Shares to buy for 2022
The first company on my list is the insurance group Hiscox (LSE: HSX). This corporation has suffered over the past 24 months, due to rising claims from business interruption insurance policies.
These claims have forced the group to make substantial payouts to customers, which have weakened its balance sheet and reduced its ability to capitalise on rising insurance rates across the rest of the market.
However, as the company works its way through these issues and new policies are issued that exclude pandemic cover, this headwind should come to an end shortly. It should then be able to capitalise on favourable tailwinds in the rest of the sector. These are the reasons why I think the corporation would make a great addition to my portfolio of UK shares in 2022.
With the shackles removed, Hiscox’s growth could accelerate. This could drive a re-rating of the stock.
That said, the company will always be exposed to insurance risks. Challenges like significant catastrophe losses could hit profitability and weaken its balance sheet. This is something I will be keeping in mind.
UK shares for growth
The other company that I think is one of the best shares to buy now is Great Portland Estates (LSE: GPOR). This business owns a unique selection of properties in Central London. The value of these properties plunged last year as the pandemic wreaked havoc with the real estate sector across the country.
However, this year, property values have started to recover. Great Portland’s portfolio increased in value by 2% during the six months to the end of September.
It has also been signing new leases with tenants. The average rental uplift on these leases is nearly 10%. This shows the quality of the portfolio and the rising demand for office space in the centre of the capital.
Despite these attractive qualities, the stock is still trading below its net asset value per share of 796p. Considering this valuation gap, I would buy the stock for my portfolio. I think the value of the shares could increase next year as the economy rebuilds.
Headwinds the enterprise and may face over the next 12 months include higher interest rates, which could increase the cost of its debt. Additional pandemic restrictions may also hit demand for new leases. This would hurt the firm’s outlook and near-term recovery potential from the pandemic.
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Rupert Hargreaves owns shares in Great Portland Estates. The Motley Fool UK has no position in any of the shares mentioned. 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.