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When share prices are moving higher, buying can be hard. Despite this, I think there are a couple of UK stocks that are worth considering even as markets rally after the recent drop.
Nobody likes seeing something they were thinking of buying trading at a higher price. But being a good investor is about looking past the short-term movements at the bigger picture.
Quality
There are two things I look for in a quality business. The first is a strong competitive position that’s hard to disrupt and the second is the ability to earn strong returns on capital.
To be a good investment, a firm has to be able to differentiate itself over the long term. If a competitor can make a cheaper or better product, this is going to be a problem sooner or later.
Equally, a business needs to be able to earn a good return on its growth investments. Shares in a company that invests £100m to grow its profits by £1m are unlikely to be a good investment.
Finding these kinds of companies trading at attractive prices isn’t easy. But even with share prices moving higher, I still think there are opportunities available.
WH Smith
FTSE 250 retailer WH Smith (LSE:SMWH) probably isn’t the first name that comes to mind for investors looking for quality stocks. But I think it’s a better business than most people realise.
The firm has recently agreed to sell off its high-street stores and focus on its travel operations. These are located in airports, hospitals, and train stations, where competition is very limited.
This brings increased exposure to travel, which increases the risk from a recession. I’m keeping a close eye on this, but I’m also mindful that the stock still looks like good value.
WH Smith’s travel division generated £189m in operating profit in 2024 – over 15% of the current market cap. So even with the share price rising, I think it’s worth considering.
FW Thorpe
Industrial lighting company FW Thorpe (LSE:TFW) is a stock a lot of investors might not be familiar with. But it has a number of attractive features from an investment perspective.
The company isn’t the biggest – and this creates a risk of larger organisations with greater scale looking to compete with it. But it does have a strong competitive position.
FW Thorpe focuses on industries with specific regulatory requirements, such as hospitals and road tunnels. This allows it to use its technical expertise to provide added value for customers.
The stock hasn’t really participated in the recent rally. And with a consistent track record of returns on equity above 10%, I think it’s well worth a look at today’s prices.
Investment opportunities
It can be tough to buy stocks that were trading at cheaper prices only a few days ago. But what matters is where the share price is now, now where it has been.
Investors should be careful not to fall into the trap of thinking a stock that has recently gone up can’t continue to do so. This can be an expensive mistake.
What matters most of all is finding a quality business. And I think there are still some in the UK that are worth a closer investigation for investors looking to buy shares right now.
