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At FTSE All-Share Index has massively underperformed over the past decade when comparing his performance against S&P 500. However, I believe 2023 could be a good opportunity to get cheap UK stocks because of the high potential and passive income.
Hold on in the recession
In the past few months, Britain’s GDP has contracted. So, analysts are projecting that the recession will continue for most – if not all – of 2023. This will make the UK one of the worst recessions it has ever faced. In fact, new Financial Times report said the British economy will experience one of the weakest recovery among the G7 countries in the next year. Therefore, it may seem strange to want to buy UK-listed shares at that time. But here are two reasons why I am bullish.
The first is that stocks always fall during recessions, before rallying during economic recoveries. This is because the market tends to trade based on future cash flows and speculation. While Britain’s economy won’t make much progress in the next year or two, I have no doubt that it will grow again.
More importantly, the biggest stocks get most of their income from outside the UK. This is especially the case for FTSE 100. As a result, local recessions do not affect the top and bottom lines of large companies very much. This is even more so for commodity stocks and miners.
Interest for income
This leads me to think that investing in UK listed companies could be a good opportunity for passive income and growth this year. And research from Shore Capital seems to agree.
Based on predictions from the broker AJ Bell, the best performing UK shares this year are expected to be in oil & gas, financials, mining, consumer staples and industrials. To complement this, the dividend is also forecast to grow significantly, which will be very beneficial for investors looking for passive income, such as myself.
| Sector | Estimated pre-tax profit growth | Dividend growth forecast |
|---|---|---|
| Oil & Gas | 24% | 23% |
| Finance | 23% | 18% |
| mining | 16% | 16% |
| Consumer staples | 12% | 12% |
| Industry | 7% | 8% |
Oil prices are expected to remain at higher levels this year. So it’s easy to see why brokers are seeing healthy double-digit growth in the sector’s pre-tax profits and dividends. Meanwhile, interest rates should remain at a fairly high level. This should see the bank for example Lloyds continue to benefit from additional net interest income. In addition, slow inflation should allow retailers of consumer staples to thrive Tesco to expand the bottom line again.
In particular, UK mid-cap stocks such as housebuilders may present a buying opportunity. Property developers such as Taylor Wimpey it has lost up to 40% of its value over the past year. Even so, house prices are only anticipated to fall by 10%. With a healthy balance sheet, good dividend cover, low valuation multiples and a high target price, buying UK housebuilder shares at this level could be a bargain for me.
What am I going to do
As most UK stocks trade at a slight discount and have high dividend yields with reasonable dividend cover, I would always look for cheap names with upside potential to invest in.
The post UK shared: once-in-a-decade chance to get rich appeared first on The Motley Fool UK.
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John Choong have no position in any of these stocks. Motley Fool UK has recommended Lloyds Banking Group Plc and Tesco Plc. The views expressed in the companies mentioned in this article are those of the author and therefore may differ from official recommendations made in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering multiple perspectives makes us better investors.
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