If I had a lump sum of £5k to start investing with today, I would buy a basket of my favourite equities.
I like to buy stocks that are both undervalued and high-quality. These investments are few and far between, but there are plenty of different businesses I am attracted to right now. I would acquire these stocks to build a diversified portfolio of equities with my £5,000 allowance.
Stocks to start investing
The first corporation I would buy for my starter portfolio is Unilever. I think this is an excellent foundation stock for any portfolio. The company’s own portfolio of billion-pound brands and global reach are both desirable. And as the stock has underperformed the market this year, it currently appears undervalued.
With these defensive qualities, I hope Unilever will continue to earn returns for my portfolio year after year. That allows me to take more risk in the rest of the portfolio.
Alongside Unilever, I would acquire S&U. This company provides car and bridge financing. It is still majority-owned by its founding family and has a long track record of conservative underwriting for loans.
I tend to avoid financial firms as I do not really trust management teams to look out for investors. I think many managers focus too much on growth and overlook the quality of the business and the loans they are making. This can lead to losses further down the line.
The fact that S&U’s founders still have a considerable interest in the business suggests to me that the company will continue with its conservative loan underwriting policy. Thanks to its focus on quality, the group is also highly profitable.
Tech stocks
If I had to start investing today with £5k, as well as the organisations outlined above, I would buy a couple of tech stocks. Two companies, in particular, I like are Rightmove and Autotrader.
Both of these firms own and manage websites that carved out a niche for themselves in their respective markets. Rightmove has become the go-to website for property hunters. Meanwhile, Autotrader has become the go-to site for buyers and sellers of new and used vehicles.
These companies’ reputations among consumers are, in my opinion, their most significant competitive advantages. Their reputations also mean they have more control over pricing, which translates into high profit margins. As long as Rightmove and Autotrader continue to invest in their consumer offerings, I reckon these qualities will persist.
Risky investment
One significant risk that comes with the process of buying individual stocks is that these companies may not perform as expected. Picking winning stocks is incredibly difficult. Even the professionals get it wrong regularly.
That is why I am taking a considerable risk with the above approach. If one or all of the companies outlined above do not perform as expected, I could lose money. Still, I think this is a trade-off that is worth it for potential capital growth and income.
Rupert Hargreaves owns shares of Unilever. The Motley Fool UK has recommended Auto Trader, Rightmove, S & U, 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.
This post was originally published on Motley Fool
