Last week, analysts at investment bank JP Morgan upgraded UK stocks to ‘overweight’ for the first time since Brexit. Noting that the UK market trades at a “record discount” to other regions such as the US and Europe, the Wall Street giant listed 25 British stocks that could perform well going forward.
JP Morgan’s top UK stock picks
Here, I’m going to reveal those 25 stocks highlighted in its research note. Should I buy these shares for my own investment portfolio?
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Looking at this list of stocks, there are not many names I’d be comfortable buying for my own portfolio today. A lot of those companies have low growth prospects meaning that, while they could have share price upside in the short term, they’re unlikely to generate the kinds of returns I’m personally looking for (10%+ per year) over the long term.
That said, there are a few shares on the list I’d be happy to buy today. Here’s a look at one I’m bullish on.
I’d buy this British stock
My top pick from JP Morgan’s list is JD Sports Fashion (LSE: JD). It’s a leading retailer of athletic footwear and clothing (athleisure) that operates in the UK, Europe, the US, and Asia.
JD Sports Fashion has a lot of momentum right now. In the first half of its financial year (its year ends 31 January), the group posted revenue of £3.9bn, up from £2.5bn a year earlier and £2.7bn two years earlier. Meanwhile, profit before tax came in at a record £440m. Adjusted earnings per share amounted to 29.16p versus 6.09p a year earlier.
Looking ahead, I expect the retailer to keep growing at a healthy rate on the back of the shift towards dressing more comfortably. It should also benefit from the steady growth of the athletic footwear market which is forecast to grow by around 5% per year between now and 2026.
It’s worth noting that the outlook statement from management in the company’s H1 results was very positive. “We remain absolutely confident that our inherent strengths in retail dynamics and operations provide us with a robust platform to make further progress,” said executive chairman Peter Cowgill. “Ultimately, the Group is at the pinnacle of the global sports fashion industry,” he added.
There are risks here, of course. In the short term, further Covid-19 lockdowns could derail the company’s growth plans as could supply chain challenges. Meanwhile, in the long run, the company could be impacted by the move from retailers such as Nike and Adidas to sell goods direct to consumers.
Overall however, I think this stock has a lot of appeal at present. The forward-looking price-to-earnings (P/E) ratio here is around 23 at the moment, which seems very reasonable, to my mind.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Edward Sheldon owns shares of DS Smith, JD Sports Fashion, Lloyds Banking Group, and Reckitt plc. The Motley Fool UK has recommended Barclays, British Land Co, Britvic, DS Smith, ITV, Imperial Brands, Lloyds Banking Group, Melrose, Nike, Reckitt plc, Tesco, and Victrex. 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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