Some people considering investing in UK shares for the first time in December might be tempted to wait till after the New Year. Others may put it off for years.
However, history shows the best time to start investing is right now, due to the power of compounding (earning interest on interest).
For example, if I invest £5,000 at a 10% annual return for 30 years, it grows to approximately £87,247. However, if I delay investing by just five years, it would leave me with around £54,173.
That’s a difference of more than £33,000!
This is why I invest every month, come rain, shine or December snow. I want to add more compounding fuel to the fire.
Why the UK?
Right now, much of the US stock market is very highly valued. AI software juggernaut Palantir is trading at about 60 times sales, while Tesla‘s forward price-to-earnings (P/E) ratio is approaching 100.
These valuations are arguably in bubble territory. Therefore, I’m being careful not to step on overvalued landmines in December.
In contrast, the London Stock Exchange remains extremely cheap compared to New York. This makes it easier to hunt for potentially lucrative long-term opportunities.
Still on track for growth
So, what do I have my eye on in December? Well, I’m weighting up half a dozen candidates. I won’t be able to invest in every single one — Christmas isn’t cheap, after all– but I’ll buy a couple.
One stock I’m considering adding to is Greggs (LSE: GRG). Shares of the beloved bakery chain have slipped around 16% since September, as investors worry about slowing growth and extra costs arising from the tax-raising UK Budget.
To be fair, these worries aren’t without merit. Like-for-like sales growth was 5% in Q3, a slowdown from the 7.4% Greggs reported in H1. And higher wages and tax rises are set to increase its annual costs by tens of millions of pounds.
Slowing growth (potentially) and higher costs are hardly a great recipe, so there are risks here.
Taking a longer-term view, however, I still think there’s a lot to like. CEO Roisin Currie recently told Reuters that the Budget won’t affect the company’s ambitious growth plans. “Our shop growth plan, our supply chain investment, none of that changes. We are still absolutely going for growth”, she said.
There’ll be “pennies” added to the food to offset the extra costs. Meanwhile, it’s on track to open up to 160 net new shops this year, focusing on petrol stations, retail parks, and transport hubs.
The medium-term target is for more than 3,000 shops, up from 2,559 in September. Over the long run, the firm imagines a store estate of over 4,500, and has overseas expansion on the menu at some point.
Do I think Greggs would do well in places like Spain? I don’t see why not. There are plenty of British tourists and it has a powerful brand.
Right now, the stock is trading on a P/E multiple of 19.9. That’s slightly below its 10-year average of 22.2, while it also offers a 2.5% dividend yield.
Based on earnings forecasts, the P/E ratio is expected to drop to around 17 by 2026. For a high-quality firm with strong growth potential, I reckon this represents decent value.
This post was originally published on Motley Fool
