Today, I’m looking at my top stocks to buy before the end of the month when the market get busier. While the market is normally a little quieter in the summer anyway, I’m expecting Liz Truss to be announced as UK prime minister in early September, and that could get it moving pretty quick.
As such, I want to get my portfolio in order, not because I think Truss has anything surprising up her sleeve, but because I think it’ll wake the FTSE up from its summer slumber.
So, here’s where I’m putting my money.
I’m looking to move more of my money into banking stocks right now. For years, we’ve had near-zero interest rates and that’s not been good for banks. But now interest rates are going up and these businesses are already making more money.
Lloyds and Barclays are among my favourites. They both trade with very attractive price-to-earnings (P/E) ratios. Lloyds has a P/E of six and Barclays is four.
I’m particularly interested in Lloyds because of the relative safety it offers. It doesn’t have a big investment arm — these have been a drag on some banks — and its focused on UK mortgages. I consider this to be a fairly safe area of the economy.
I also like Lloyds’ move into the rental market, with its plans to buy around 50,000 homes over the next 10 years. Increasing net interest margins should provide it with plenty of capital to make this happen.
Naturally, forecast recession won’t be good for credit quality, but I think interest rate will provide benefits that outweigh the downside.
I’m also interested in a couple of European banks as those in France and Italy are also benefiting from higher rates. But I have some concerns about exchange rate fluctuations.
I already own shares in Lloyds and Barclays, but would buy more today.
While Liz Truss is promising to cut taxes from day one, it still look highly likely that the UK will fall into a recession in late 2022 or early 2023. In fact, tax cuts will probably push up inflation but may just postpone the recession by a quarter or two.
Either way, there are some fairly negative economic forecasts, so I want to make sure that my portfolio is geared accordingly.
I’m looking at defensive stocks. One defensive area is tobacco. The addictive nature of smoking means that many customers keep buying cigarettes even when times are tough and they’re short on cash. British American Tobacco which owns brands like Lucky Stripe could benefit from this. I don’t love the idea of investing in tobacco, but it certainly has defensive qualities. In the longer run, however, regulatory changes that might clamp down on smoking and the firm’s revenue generation.
Unilever is my personal favourite. It owns many household brands such as Hellmann’s, Marmite, Heinz, Persil, and Lifebuoy. There’s another benefit in that Unilever sells its products around the world — 190 countries to be precise — so as the pound gets weaker, Unilever’s earnings are inflated. If the recession is worse than we expect, maybe Unilever will feel the pain. But I think the firm has the strong brands to carry it through.
I already own some of its shares, but would buy more today.
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James Fox owns shares in Barclays, Lloyds and Unilever. The Motley Fool UK has recommended Barclays, British American Tobacco, Lloyds Banking Group, and Unilever. 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.