The idea of a buy-and-hold strategy in investing is that if one finds a company with good long-term business prospects, why sell it? Hopefully over time the strength of its business model will help the company produce high profits. The share price may move around from time to time, but over years, hopefully a consistently profitable business will see its valuation reflect its success.
Here are five UK shares I would consider holding in my portfolio as part of such a buy-and-hold strategy.
Consumer goods giants
With a market of billions of people and an ongoing role in daily life, consumer goods manufacturers can be a logical fit for a buy-and-hold strategy. Their brands give them a point of competitive advantage that can help sustain profits in the long term.
A couple of such UK shares – Unilever and Reckitt – have both seen their share price slide in the past year. Reckitt has lost 7% of its value, while at Reckitt the fall has been twice as big. This could offer me a buying opportunity to add both companies to my portfolio as part of a buy-and-hold strategy.
Cost inflation could hurt profits, although so far Reckitt at least seems to be managing that risk very well. Owning premium brands gives both firms pricing power in the long term.
Like consumer goods, I see demand for some financial services products as quite resilient. Even if the economy crashes, people will still insure their cars.
That is why I would happily add Legal & General to my portfolio as part of my strategy. The insurance and financial services company has a large customer base already. Its iconic brand can help it to keep attracting new ones.
Its spread of business means that as well as fairly durable insurance demand, it could benefit from growth in its investment management business. I also like the company’s income potential. Currently it yields 6.7%. It plans to raise its dividends in the next couple of years, although dividends are never guaranteed. A falling stock market could lead some customers to withdraw funds, though, which is a threat to profits.
Another area where I expect to see strong demand over the long term is medical devices.
One manufacturer I would consider for my portfolio is Smith & Nephew. It has a well-established, global business. The shares are down 14% in a year. I see that cheapening as a buying opportunity for my portfolio. The company has a 2.3% dividend yield. If the business grows in line with its forecasts, the share price may also rise.
Finally I would consider Advanced Medical Solutions. The pandemic hurt the company. Revenue growth reversed and post-tax profits more than halved. But the consistently profitable manufacturer could benefit from rising demand for its products in years to come. A risk for it as well as Smith & Nephew is that delayed elective procedures continue to hurt sales and profits. But I expect demand growth to return and would consider the company as part of my buy and hold strategy.
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Christopher Ruane owns shares in Unilever. The Motley Fool UK has recommended Advanced Medical Solutions, Reckitt plc, Smith & Nephew, and Unilever. 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.