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He FTSE 100 reached record levels in February. As someone who wants to buy UK stocks this presents something of a challenge.
I think the index contains some great stocks. But even the best companies can be bad investments for someone who overpays for them.
At this time, the shares of Experian, Halmaand The London Stock Exchange Group they are all trading at a P/E ratio above 30. At those levels, I think they look expensive.
Despite this, I believe there are still good investment opportunities in UK stocks. Here are two that stand out to me.
Primary health properties
first is Primary health properties (LSE:PHP). It’s a FTSE 250 constituent and is on my shortlist for my Stocks and Stocks ISA in March.
The company is a Real Estate Investment Trust (REIT). That means it makes money by renting out properties to tenants and distributing their rental income to shareholders as dividends.
Primary Health Properties focuses on medical practices and pharmacies. Around 90% of its income comes from one source: the UK government.
Usually that could be risky. The danger of getting most of your rent from a single source is that if the tenant leaves, most of the company’s income goes with him.
However, in the case of primary health properties, I think this is unlikely to be an issue. The government’s commitment to the NHS and primary care solutions seems strong to me.
When I invest in REITs, I expect most of the return to come from the dividend. Right now, the stock is performing an eye-catching return of just over 6%.
The dividend has also been growing steadily for the past 26 years. I think the future looks bright for Primary Health Properties so I am looking to buy it today and hold it for a long time.
Howden Joinery Group
If the UK is in recession, Howden Joinery Group (LSE:HWDN) either don’t know or don’t care.
The kitchen supplier continues to expand in the UK and Europe.
The company’s share price is 22% higher than it was at the start of the year, and with a dividend yield of less than 3%, it might appear that investors have missed the boat here. But I think that is a mistake.
It is true that buying Howden shares is riskier now than it was in the New Year stage. But they are still 11% cheaper than 12 months ago.
With a P/E ratio of just under 11, the stock trades roughly in line with the FTSE 100 average. And without debt, the company is in a stronger financial position than most of its peers.
Management also reported strong margins in its latest business report. With this type of business, I see it as a sign that the company can pass the higher costs of inflation on to its customers.
Tighter economic conditions could challenge Howden’s advance. But so far this appears to have been a tailwind, with more people choosing to upgrade rather than move.
Compared to other stocks, I think Howden Joinery Group offers good value. It’s on my list of stocks to buy this month.
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