While younger people have been getting actively involved in the stock market, lots have fallen victim to risky 'Finfluencer' trends, investing in things like meme stocks and cryptocurrencies.
It can be difficult to find the spare cash to invest in today’s economic climate. So, what you do with your money matters. Doing your own homework and ignoring ‘get rich’ investment ideas is key.
Investing as early as you can, with a long-term approach in mind (at least 5 years), means you're more likely to benefit later down the line. Even if you’re only able to put away a little at a time, it could help you secure a better future.
So, whether you have some spare cash saved on the side or you're wanting to get the wheels turning on your pension, here are three share ideas that could put you ahead of the game.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Chances are you’re probably already an investor without knowing it.
If you have a pension then your pension is an investment. Statistics show that the top percentile of the richest UK households hold the bulk of their wealth in private pensions.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Past performance is not a guide to the future. Ratios shouldn’t be looked at on their own.
NEXT
Fashion retail is traditionally a tough sector to be in. Yet, Next stands out as one of our favoured names in the sector over the long term. That’s thanks to its strong management team and strategic actions that look to be yielding results.
If analysts are correct in their estimates of £5.4bn in revenue this year, that'll be a compound annual growth rate of around 5% since 2019. That's pretty good going and propped up by a combination of a growing online presence and a continued push to keep full-price sales front and centre.
Avoiding discounts is one of the reasons Next can boast some of the highest margins in the sector. In fact, last year just shy of 90% of sales were full-priced. It's a tricky strategy to nail, but one that's being managed well, especially when you consider the product ranges are growing with the introduction of things like third-party brands.
Being a retailer with a large store footprint brings its own challenges. Before the pandemic, there was a long-term decline in physical sales as the high street slowly lost its appeal. That's not a trend we expect to see change, but it can be managed.
Next has moved more of its operations into out-of-town retail parks, while keeping high street leases short and flexible to allow changes as needed. To its credit, in-store performance since things have reopened has been steady, though it’s something to keep an eye on.
The online space is where we think Next has really moved ahead of its peers.
There was a tough spot a few years ago while online capacity ramped up and tight integration with stores meant COVID-19 was painful for online sales.
However, with those challenges behind us, the future looks a lot brighter. The omni-channel integration is now a competitive advantage. And unlike some who've seen online sales fall back with store's reopening, Next's higher online demand looks to be sticky.
There's also a strong balance sheet and healthy cash flows, two key things if you're looking for a business with longevity.
The group's valuation is currently trading in line with peers on a price-to-earnings basis, which we see as undemanding given its history of delivering higher-than-average returns. There's no guarantee that continues though and cost inflation remains a challenge, so expect ups and downs along the way.
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Primary Health Properties
Diversification is key but can sometimes be overlooked by younger investors. It's easy to end up with a portfolio of exciting companies and forget some of the more alternative asset classes. Real estate is one example, and Primary Health Properties (PHP) offers something a little different to your traditional commercial landlord.
PHP owns, develops, and rents out healthcare facilities in the UK and Ireland – think GP surgeries. One of the key advantages of the space is the tenants. 89% of the group's rent roll is funded by the NHS or its Irish equivalent, with an average lease length of 11 years. As far as secure tenants go, government agencies land pretty high up on that list.
Looking to the future, we think PHP has several features that underpin long-term dividend-paying potential. The backlog of procedures in the NHS and the needs of an ageing population means investment in primary care facilities is going nowhere.
Aside from renting, PHP also develops assets to flip in the secondary market. Higher interest rates and the associated increase in development costs mean this side has taken a backseat more recently. It's a play we like, but an area in future that offers another avenue to make money.
The lack of new development does have its benefits. Landlords like PHP have more bargaining power on rent prices when there are fewer options on the table for tenants. Plus, with over two thirds of rents up for review every three years and a further quarter index-linked, there's plenty of scope to benefit from the improving rental market.
In the short term, there are risks. PHP's loan-to-value is high by industry standards, so rising costs of debt are something to watch for. It would also be impacted by an economic downturn if government spending came under scrutiny.
Being a younger investor, time is your ally and we like PHP as a long-term investment. As a REIT (real estate investment trust), PHP has to pay out the vast majority of profits as a dividend and it's got a long history of growing cash returns. If you can afford to reinvest a growing dividend, compounding can be a powerful wealth builder. Of course, dividends are variable and there are no guarantees.
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Rio Tinto
It's been mentioned before, but one advantage of being in the early stages of your investment journey is time. That gives scope to ride cycles, but also reap the benefits of mega-trends that play out over decades rather than years.
We see the energy transition as one of these trends. As the world moves away from carbon-intensive processes, there's a host of opportunities available for those set up to assist the transition. Miners will play a key role. There won't be an energy transition without the materials to build next-generation technologies.
Having sold off all its coal assets several years ago, Rio Tinto is now one of our favoured miners to take advantage of the energy transition. Its operations focus on iron ore, which is mainly used in steel-making, but it's increasing exposure to the likes of copper, aluminium and lithium – all critical to the energy transition.
Iron ore is the cash cow of the business and makes up over three quarters of cash profit. Questions remain around the demand picture from China, the world's largest consumer of iron ore, as its post-pandemic recovery hasn't progressed as quick as some would like. Fresh stimulus is welcome, but it's a key area and one that's adding an element of doubt to the demand picture.
Longer term, steel demand is expected to grow around 1-2% over the next decade. Rio is a key producer of one of the world's most recognised and highest-quality iron ore blends from the Pilbara region in Australia. High-quality and low-cost production are both key advantages that mean Rio can ride the commodity pricing cycles a little better than some peers.
We're seeing the cyclical nature of the business play out right now, as prices of key commodities have come down from the highs seen in the last couple of years. Lower prices mean lower profits, which feed through to lower shareholder distributions. But, with a strong balance sheet and prices that are expected to support around $8.5bn of free cash flow this year, there's still plenty to like.
Rio has some quality assets, and there's plenty of scope to support the global decarbonisation effort. In the here and now though, what’s next for demand from China throws up some question marks and is a risk worth bearing in mind.
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Unless otherwise stated, estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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