These UK shares could be well-positioned to benefit from any strong rise in the stock market in December. This phenomenon, known as the Santa Rally, happens more often than not. Of course, nobody knows if we’ll get one this year. Here are two stocks with long-term potential that I may be buying soon – could they benefit?
UK shares primed for a Santa Rally?
The first UK share that I think could do well this year and in subsequent years is MacFarlane (LSE: MACF). This month, in particular, should see high demand for packaging, benefitting the Scotland-based packaging manufacturer and distributor.
The group has historically had consistent revenue growth, alongside a return on capital employed of 15%. Combined, this indicates to me that management has run the group well, which is why it may be a good addition to my portfolio. It’s a steady and dependable kind of company. On the downside, it’s hard to really differentiate it from the competition but management has managed to grow, which is a credit to their ability.
MacFarlane is almost certainly going to be hit by the lorry driver shortage. If it can pass on these costs then it’s not a problem. If it can’t, margins will be hit. So far, the impact seems to have been contained because in November the group’s management said they expect annual profit to exceed previous expectations.
Nonetheless, MacFarlane as a packaging manufacturer could be hit financially by any raw material price increases, which may be the result of the current, well-documented supply chain issues.
I’ve been a fan of MacFarlane for a while. It seems to have the hallmarks of a quality company that is well managed and able to grow. It also pays a dividend, which is very welcome. I’m still likely to buy the shares if there’s room in my portfolio, but there are a lot of shares that I like.
The share with phenomenal margins
Mining is an inherently tricky industry. However, I like the look of iron ore miner Ferrexpo (LSE: FXPO) and already hold the shares. The share price has declined as the commodity price of iron ore on international markets has fallen. This is partly due to fears around the Chinese economy and the health of its property market after Evergrande missed debt repayments. That is an issue that is ongoing.
So there are risks to investing in Ferrexpo, without a doubt. I’ve invested despite being aware of that. Those risks include that it operates in Ukraine and that the market dictates the price of iron ore.
On the flip side, Ferrexpo is a solid miner. It has operating margins of around 55% and huge amounts of cash on the balance sheet, giving it financial stability, as well as enabling management to pay a dividend. The dividend yield is now above 10%. Combine that with a P/E ratio of around four and I think Ferrexpo is a UK share that provides a rock bottom valuation, a high income, and the potential for short-term share price recovery.
With all that in mind, I’m likely to be adding to my holding in the miner both for yield and because the shares have become much cheaper and could bounce back.
