UK stocks have been soaring lately. I’ve got cash sitting in my trading account but with the FTSE 100 near record highs, some of the shares on my watchlist are starting to look pricey. Here are three I’d add to my portfolio if valuations dipped a little.
London Stock Exchange Group
London Stock Exchange Group (LSE: LSEG) has skyrocketed over the last decade but it’s found the going slower lately, rising just 2.5% in the last 12 months.
With a price-to-earnings (P/E) ratio of 27.5, the financial data company is beginning to look expensive, and I may not be the only investor thinking that. The shares dipped 4% on 31 July despite a decent set of half-year results, which showed adjusted earnings per share jumping 20.1% to 208.9p, and reported earnings per share (EPS) rose almost 90%.
Management rewarded shareholders with a 14.6% hike in the interim dividend to 47p, and there’s a further £1bn share buyback planned for the second half, after £500m in the first. What more do investors want?
Management also highlighted solid subscription revenues, AI interest, and a Microsoft tie-up. But still investors remain wary. I guess AI could be a threat as well as an opportunity.
The business does faces intense competition from other global exchanges and financial data providers, while rapid changes in trading technology and data analytics could erode its market position or margins. Its high valution is another risk, but a handily-timed market pullback could mitigate that.
Barclays is bouncing
Barclays (LSE: BARC) has enjoyed a sensational run: up 68% in a year and 140% over two. Latest results, released on 29 July, showed a £1bn rise in first-half profits. Share buybacks and dividends have surged, with total capital returns for the period at £1.4bn. That’s up 21% year on year.
The dividend yield is modest at 2.3%, as the board prefers buybacks. This should push future payouts higher through reduced a share count. I tend to prefer dividends, but you can’t have everything.
Risks include a banking tax raid in the autumn Budget and squeezed margins from falling interest rates. Barclays trades at a P/E just over 10, which isn’t exactly demanding. But a cooling market could take out some of the heat from its sizzling share price.
Babcock International: strength in defence strength
Babcock International (LSE: BAB) is up a blockbuster 80% over the last year. Its full-year results, published on 25 June, impressed with annual operating profit up 50% to £364m. The company also unveiled its first-ever share buyback of £200m. The order backlog now stands at a sturdy £10.4bn, offering good earnings visibility.
Geopolitical risks show no signs of easing although hard-up European governments may struggle to maintain NATO-level spending. With a P/E of around 18.8, Babcock isn’t as pricey as others in the sector. A dip would make it look even better value.
If these names pause or dip I’ll be watching closely for my chance. Investors might consider buying these top growth stocks anyway, but a better entry point would be nice if it happens.
