In the last year, two key trends have defined the stock markets. One, the stock market crash that happened in March. As Covid-19 spooked investors, some UK shares quickly became no-gos. Think of hospitality, retail, and travel stocks. At the same time, safer stocks like healthcare and utilities became more attractive.
The next key trend came around seven months later in early November when the stock market rally started on vaccine discoveries. The trend flipped as the bulls returned and the bears retreated. Suddenly, the Covid-19-hit UK shares were once again coveted. Their prices rose fast even though their performance is yet to return.
On the other hand, high performing defensive stocks have seen muted activity. I think this is partly because investors probably wanted to cash in on already elevated share prices and partly because they saw better potential returns among the beleaguered stocks.
I think now is a good opportunity to buy these high-quality stocks for those of us who missed buying these UK shares at their highs. Here are three of them.
#1. Sage Group: UK share in a strong place
The FTSE 100 business software and solutions provider has seen a 20% drop in share price from its highs in September last year to now. It is true that it saw a small fall in revenues for its financial year ending 30 September 2020. But, at the same time, its net income increased.
It is also in the process of streamlining geographically, with the sale of businesses in Asia, Australia, and most recently in Poland. It also pays a dividend and has a yield of almost 4% now.
The UK share does have a price-to-earnings (P/E) ratio of around 20 times which is not exactly cheap, but is not the most expensive around either.
#2. Rentokil Initial: Covid-19 demand to slow
The FTSE 100 hygiene and pest control services provider, Rentokil Initial, is also 17% down from its highs.
This is despite a 6% increase in revenues for 2020, and an increase in operating profit too. It does expect some come off in revenue growth in the next year, but it is still expecting growth to continue.
Further, it also restarted dividends.
The downside here is that the UK share has a high P/E of almost 50 times. But going by both its performance and outlook, I am not sure if the slide will continue for long. I think it is a share I would like to buy.
#3. Bunzl: robust results
The FTSE 100 distribution services providers reported robust full-year 2020 results recently. But its share price is down more than 16% from the pre-stock market rally highs.
Its P/E is not terribly high either at 17 times, and it has a 2.5% dividend yield.
The takeaway for these UK shares
Going by these shares’ credentials I reckon these UK shares prices will start rising once the stock markets have adjusted enough to the rush towards truly cheap shares.
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Manika Premsingh owns shares of Rentokil Initial. The Motley Fool UK has recommended Sage Group. 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.
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