fbpx

UK shares to buy in advance of a Santa rally

Could UK shares experience a so-called Santa rally this year? If only anyone knew. But the phenomenon of stocks doing well at the end of the year does occur more years than not.

So as we reach deeper into autumn (and the rain becomes even more frequent), which UK shares do I think could be strong candidates for finishing the year much higher? Here are two that have good prospects and that I might buy. 

Primed for a rally?

Scotland-based packaging manufacturer and distributor MacFarlane (LSE: MACF), although facing some (hopefully) short-term challenges, looks to me to be a good long-term investment.

Consistent revenue growth, alongside a return on capital employed of 15%, shows to me that this packaging company does what it does well.  

The fact the shares have just dropped from all-time highs potentially creates an opportunity to buy the shares before any Santa rally.

That said, as a distributor, MacFarlane is likely 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. Although one saving grace is that all its competitors are likely to be in the same boat. Cost pressures are a whole industry problem, not one specific to MacFarlane so I feel it shouldn’t be disproportionately affected.

I’ll consider adding the shares to my investment portfolio.

A riskier UK share

Iron ore miner Ferrexpo (LSE: FXPO) seems to me a riskier proposition. On the one hand, the shares are very cheap if I look only at the numbers. The P/E is three, the price to book value is 1.33 and enterprise-value-to-EBITDA ratio is 1.61. All of these numbers (the lower the better) suggest to me that the shares are very good value.

The shares could do well if the Chinese economy grows strongly and the immediate crisis over Evergrande’s debts, which threaten the Chinese property sector, blow over.

However, if demand for steel (for which iron ore is key) fades, then the Ferrexpo share price could tank. The fact that its shares are already cheap won’t, in the short term at least, affect investors’ perceptions that it’s worth avoiding iron ore miners. Even cheap shares can still fall further. Ferrexpo has a challenge in that it’s not a diversified miner like a BHP. Its fortunes are very tied to the global demand for and price of iron ore.

At the moment I won’t add to my holding in Ferrexpo. That doesn’t mean that there isn’t the potential in the right circumstances for this UK share to grow massively. As a shareholder, I’m keeping my fingers crossed.

I’m hoping for a Santa rally this year. If it does come, then I think MacFarlane because of its quality and Ferrexpo because it’s cheap, could both be positioned to do well.  

The post UK shares to buy in advance of a Santa rally appeared first on The Motley Fool UK.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

Since 2016, annual revenues increased 31%
In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

More reading

How I’m aiming for £500 a month in passive income from dividend stocks

Andy Ross owns shares in Ferrexpo. The Motley Fool UK has no position in any of the shares mentioned. 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.

Leave a Reply

%d bloggers like this: