Picking the best shares to buy now isn’t easy. The Covid-19 pandemic has thrown the world into turmoil. Investors have been forced to reappraise not only the near-term outlook for businesses, but also the potential longer-term impacts on different industries.
Stocks are extremely volatile, as investors grapple with the question of which offer value and which could be value traps. With this in mind, here are is one of my best shares to buy now, and some I’d sell.
Very much not one of my best shares to buy now!
It’s hard to think of a more toxic combination than a company carrying huge debt and facing not only extreme near-term cyclical stress, but also long-term structural headwinds. Step forward shopping centres owner Intu Properties, with a gross debt load of £4.7bn.
Intu has appointed KPMG to contingency plan for administration, and it’s unsecured debt (which ranks ahead of equity) is trading at just 12p in the pound. This tells me all I need to know about the likely value of equity. The shares are trading at 4p, as I’m writing. I’d sell at any price above a penny.
This is one of my best shares to buy now
Primary Health Properties couldn’t be more different to Intu. It has a strong balance sheet. Largely government-backed income from its modern primary health facilities shields it from external cyclical forces. And there’s a long-term demand story, due to growing and ageing populations.
Small wonder PHP has been able to deliver 23 consecutive years of rising dividends. I’m expecting another increase this year – to 5.9p. At a share price of 153p, the prospective yield is 3.9%. The attractive characteristics of the business and its inflation-busting dividend make it one of my best shares to buy now.
Swimming naked
Back when the last financial crisis was unfolding, Warren Buffett famously said: “You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight“.
The big banks are now subject to much greater regulatory oversight. However, there’s been rapid growth in shadow banking. The Office for Budget Responsibility (OBR) noted last year: “One lesson from history is that when risk is suppressed in one part of the financial system, it often migrates to some other less heavily regulated part“.
Two stocks on my sell list
With Buffett and the OBR in mind, two stocks on my ‘sell’ list are Amigo and Funding Circle. Amigo lends at an APR of 49.9% to folk who can’t get a loan anywhere else, but who can find someone foolish enough to act as a guarantor. It’s an increasingly troubled business, with a default rate running at over 30%, a rising tide of mis-selling complaints, and the Financial Conduct Authority crawling all over it.
Meanwhile, Funding Circle is a platform that brings together yield-hungry folk who want to lend with small businesses who want to borrow. I’ve long had doubts about the quality of the loan book. I see its recent accreditation to make government-backed coronavirus emergency loans to small businesses as only a temporary cloak. In other words, like Amigo, I reckon there’s a high risk Funding Circle will be revealed to have been swimming naked when the tide goes out.
