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The UK stock market has been having a bit of a funny turn. On one hand, the flagship FTSE 100 index of leading UK shares hit a new all-time high earlier this year and some of the individual shares in it have been absolutely flying.
On the other hand, though, the economic outlook for Britain is fairly underwhelming and some share prices have been moving erratically.
Given that background, here are five UK shares I think investors should consider in the current environment.
Dividend champions
To start with, a couple of high-yield dividend shares: British American Tobacco (yielding 7.2%) and M&G (8.5%).
Those unusually high yields speak to company-specific risks: ongoing decline in cigarette sales for British American and a net outflow of funds in M&G’s core business. In other words, although they are in very different fields, both businesses share the same challenge of replacing customers at least as quickly as they are losing them.
The strengths? British American is massively cash generative, has a premium brand portfolio that can help it expand its non-cigarette business, and is still selling over 10bn ciggies per week. It far from being in dire straits. M&G has a strong brand, large customer base, and proven business model.
Growth opportunities
While there are fewer UK shares with strong growth stories than there are across the pond, there are some.
Games Workshop (LSE: GAW) has a solid, proven business model and its unique intellectual property could propel it to new heights. The price-to-earnings ratio of 29 is too high for me, given risks like its concentrated manufacturing footprint being disrupted for some reason. But growth-focused investors may want to consider the share despite that valuation: it is on my watchlist in hope of a more attractive share price.
The same is true for Cranswick (LSE: CWK), with a well-established client base and large economies of scale.
Meat production may be unglamorous, but where there’s muck there’s brass. Cranswick shares are up 97% since October 2022.
Like British American Tobacco, it has raised its dividend per share annually for decades. Recent negative press coverage about its pig farming practices poses a reputational risk for the firm.
Turnaround opportunity
One UK share that used to be on my watchlist until I could buy it at an attractive price – which I did this year – is packaging distributor Bunzl (LSE: BNZL).
Fomerly a strong performer, the Bunzl share price has fallen 21% over the past 12 months.
Last year saw falls in both sales and basic earnings per share. The company returned to revenue growth in the first quarter of this year.
I reckon its large customer base, extensive global footprint, and huge product offering are competitive advantages that can hopefully help the firm get its mojo back and start delivering the sort of strong performance it has proven it is capable of in the past.
The company has pointed to a “more challenging economic backdrop” and that could be a risk to customer demand, as well as profit margins.
From a long-term perspective, though, I see Bunzl as a UK share with turnaround opportunity that investors should consider.
