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I like to choose UK stocks to buy and invest a minimum of £2,000 in each one. To me, that much money makes sense of the transaction costs, such as the broker fees for buying and selling.
But what should I buy in September? My watchlist has a good half-dozen UK stocks that I consider to be attractive. Their business fundamentals look good, their growth prospects look interesting, each has an undemanding valuation, and I like the look of the share price charts.
Where are we in the story?
In that last factor, I’m following the lead of Anthony Bolton, the value investor who excelled managing the Fidelity Special Situations fund. He once declared that his first action with any new stock idea was to look at the share price chart.
Why? Because he wanted to know and understand how early or late he was to the value-investment story. To me, that approach has always made a lot of sense since reading about it almost a couple of decades ago.
Digging into my watchlist, I like PayPoint (LSE: PAY), the UK-based company enabling payments and commerce for the public and private sectors.
However, perhaps the biggest risk is that it’s not the only enterprise delivering such services, so there will probably be plenty of competition. It seems likely that other companies will aspire to grabbing some of PayPoint’s market share.
The attraction to them may be huge. After all, PayPoint’s quality metrics look impressive. For example, the operating margin’s running at about 18% and the return on capital at around 25%, suggesting the business occupies a profitable niche.
If we compare those figures to a low-margin outfit like Tescothe difference is clear to see. Tesco’s operating margin is a mere 4% or so, and its return on capital is running at about 8%.
A volatile trading history
Nevertheless, another problem with PayPoint is that its multi-year earnings history’s a bit dodgy. The firm has endured several down-years for earnings as well as the occasional up-year. One outcome of that volatile performance has been limited progress from the share price.
So why do I like it now? Well, City analysts are predicting robust double-digit percentage progress for earnings this year and next. Cash flow’s been robust for several years, and the balance sheet looks strong.
Meanwhile, set against those expectations for earnings, the valuation looks modest. With the share price in the ballpark of 665p, the forward-looking dividend yield’s chunky at just under 6% for the trading year to March 2026.
At the beginning of August, the directors delivered an upbeat trading update and the company has a share buyback programme in full swing.
Despite the risks, there are too many positives for me to ignore. So I’d be inclined to conduct further research and consideration right now. This looks like a decent contender for being one of the best stocks to buy with £2,000 in September.
The post Is this the best UK stock to buy with £2,000 in September? appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. 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.
Motley Fool UK 2024