Many investors want to know the best stocks to buy right now in the UK. However, many lose money because they don’t know what to look for when investing on the London Stock Exchange. This is made worse because people follow the wrong advice and end up compounding mistakes.
In this article, you’ll learn what you need to know to identify and buy the best UK stocks for profitable investing. But first, let’s dive into UK stocks I’ve been been watching recently.
Best UK stocks I’m watching right now
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How to find the best stocks to invest in right now?
To understand the best UK stocks to invest in we need to understand that there are two markets in the UK.
There are FTSE stocks (Main Market) and also the Alternative Investment Market (AIM).
Main Market stocks have tighter regulation and can be considered safer, but this can be a hindrance for growth. This market contains the largest companies in the UK and these tend to be companies with strong business models and established cash flows. Stamp Duty is paid on Main Market stocks.
The market capitalisation for companies on AIM tends to be much smaller as these are typically small-cap companies. Retail investor accounts are more attracted to these because of the higher upside. However, these companies often do come with high risks.
Here is a company that was a successful investment from its IPO: Fevertree.

Fevertree is an asset-light company because it’s a brand. The company outsources all of its production and instead invests capital in marketing and selling the product.
This means that there are no large capex expenditures on purchasing and maintaining machinery and profits were reinvested for growth.
We’ll look at finding hidden winners later on in this article.
Should I invest now?
Investing is a long term business and the best time to start was yesterday. However, the next best time is now to give yourself as much time in the market as possible.
That said, investing depends entirely on your own personal financial situation and goals.
If you might need the capital within five years, then investing may not be suitable for you. This is because financial markets including stocks can go up and down. Needing to withdraw the money when the market is weak could mean you get back less of what you originally invested.
Many markets can appear overvalued and make it difficult to commit.
One way of getting around this is to use a method called ‘Dollar Cost Averaging’.
What is Dollar-Cost Averaging?
Dollar-Cost Averaging is an investment strategy whereby investors divide up the total investment across a specific period of time. This has the advantage of reducing volatility on the investment.
For example, if we were to buy a stock all in one go and then the stock fell -20%, we would not be able to take advantage of the dip.
However, if we used dollar-cost averaging, then we’d be buying the stock every month regardless of the stock’s price and smoothening our average.
Dollar-Cost Averaging is effective for long term investment strategies such as committing a portion of your salary to the stock market. It means you don’t need to time the market because every month you’re investing the same amount of money.
Dollar-Cost Averaging is popular with index tracker fund ETF investors.
How to find stable investments?
Investing in stocks can be a tricky business. This is because there are an endless amount of mistakes one can make if you don’t know what you’re doing.
However, we can reduce our investment risk by finding stable investments.
One of the big problems with investing in popular growth companies is that the businesses are often not profitable and also reliant on external cash injections through placings.
By avoiding these companies, we dramatically increase our chances of success in the stock market because we are removing one of the biggest risks.
In order to find stable investments, we need to:
- Check the company’s balance sheet
- Check the company’s cash flow statement
- Check the company’s income statement
Checking the company’s balance sheet
The balance sheet tells us all about the company’s financial health. Buying companies with strong balance sheets and avoiding balance sheets that look like a car crash is one good way to avoid underperforming companies.
Of course, there will be some companies with poor balance sheets that have exceptional stock price performance, but this does not mean they are stable investments.
Companies that had strong balance sheets coming into the Covid-19 pandemic did not need to raise as much (if any) new capital by selling shares. Uncertainty was reduced in these businesses because they didn’t need to rely on external funding to survive.
Greggs was awash with cash before the crash and so whilst the stock price suffered a sharp drop, it recovered quickly and pressed onto new highs. It was a Covid-19 winner making new all-time highs.

Understanding a balance sheet is key to finding profitable investments. Here’s my walkthrough on knowing your way around a balance sheet.
Checking the company’s cash flow statement
You may have heard the saying: “revenue is vanity, profit is sanity”. Often with this phrase, the last (and most important) clause is left out: “cash is reality”.
Profits are easy to manipulate and do not represent cold hard cash in the bank.
The cash flow statement of a company describes how cash moves through the business and how much cash the company is burning/generating through the course of its operations, investments, and financing.
You can go through my cash flow statement tutorial here.
Checking the company’s income statement
The company’s income statement shows the financial performance of the company. It details the company’s revenues, costs, and profits (or lack of profit).
As I said earlier, profits are easy to manipulate and management can make these numbers up at their own discretion through the use of their depreciation and amortisation policies. Revenue recognition can also play a part in the final bottom line number, as well as putting costs onto the balance sheet (otherwise known as a capitalised cost).
For example, there is one mining company that is listed on the UK stock market that has claimed exploration costs as an intangible asset.

I would say that it has spent millions on drilling holes into the ground with nothing to show for it, but management believes that this is somehow an asset. This means the cost doesn’t go through the P&L on the income statement and instead sits on the balance sheet.
How to determine a profitable investment
There is no crystal ball that tells us which stocks are profitable investments.
But here is a checklist of some of the things that I look out for when investing. r, we can use a checklist to give ourselves the best chances of success.
- Does the company have management with skin in the game?
- Does the company have a moat that protects it from competitors?
- Can the company scale and grow bigger?
- Is the company reliant on large key customers?
- Does the company have a strong balance sheet?
- Is the company actually profitable?
Does the company have management with skin in the game?
Put simply: if a company’s directors have no interest in buying shares then why should I?
Directors that buy large amounts of stock themselves in order to make a profit from the company’s stock price going up is always interesting to me.
That’s because it’s clear that our interests are aligned in wanting the share price to rise rather than using the business as a lifestyle.
That said, directors can also award themselves generous options packages and say they’re “aligned”. But it’s never the same as putting money on the table and getting skin in the game.
If directors aren’t buyers at all then think twice before you become one.
Does the company have a moat that protects itself from competitors?
A solid investment needs a moat that can protect itself from investors. An economic moat, as coined by Warren Buffet, offers a competitive advantage in business from its competitors. Imagine a castle as the business, and the moat protects the castle.
For example, The Coca-Cola Company’s moat is their flagship brand Coca-Cola and its entrenchment into almost every society and social culture.
Apple’s economic moat is its innovation and ability to continuously see what the consumer will want and create it before they know it, as well as its ecosystem which hooks people in with its ease. They did it with the iPhone. They did it with the iPod. The chances are that Apple will do it again!
High margin businesses often attract competitors due to their potential to make plenty of money.
A company with a high margin business and no economic moat will see those high margins deteriorate and eventually be eroded by competition.
Economic moats are important because without one there is nothing to stop competitors coming in to steal market share.
This happened to Safestyle UK, a company that was involved in the manufacture, sale, and installation of plastic windows throughout the UK. They were highly profitable and made a lot of money, until a competitor realised that they could do the same too! Safestyle’s share price plummeted because they did not have an edge over the competition.
If we invest in a company that does not have this moat then we leave ourselves wide open to attack.
Is the company able to scale and grow bigger?
This point is often overlooked by private investors yet it is of paramount importance.
If a company cannot scale and grow bigger then where are those future growing profits going to come from? A company can increase its profits by cutting costs, but that is limited. There is no limitation on how big a company can grow.
We can look at a company’s potential growth by looking at how much market share they have, how big the potential market is, how big the potential market can grow. We can look at overseas markets and look at if the company could grow there.
Another way to look at a company is operational gearing. This is where a company benefits from fixed costs regardless of revenue. This could be a pub chain that has to pay the rent on the leases regardless of custom coming through the door. It could be a technology company, which has a fixed cost platform irrespective of how many users are signing up.
Whilst operational gearing is fantastic when plenty of punters are coming in through the doors and users are signing up to a fixed cost platform en masse, we must be careful because operational gearing is a double-edged sword and works both ways. If the pub chain is struggling and revenue is in decline it must still pay the rent on the lease. Likewise, the tech company still needs to support its platform otherwise it will lose all revenue!
Companies that benefit from operational gearing can also see margin improvement too. We calculate margins by taking the profit (revenue minus costs) and dividing this by the revenue.
A company turning over £1,500,000 on a fixed cost base of £1,000,000 is making £500,000 on a margin of 33.3%. If that company was to grow their revenue to £2,000,000, an increase of 33.3%, they would actually increase their operational profit by 100% going from £500,000 to £1,000,000! Furthermore, their margins would also increase from 33.3% to 50%.
A company that can scale and that can grow bigger can continue its growth for many years and see dramatic appreciations in its share price.
Does the company have steady recurring revenue or is the company at risk of large revenue loss?
When investigating a company we should always look at the company’s revenue source and potential pitfalls. A company that has recurring revenue has the revenue streams already onboard, which can be projected into the future. The revenue that is recurring will only leave should the company no longer provide an adequate service for their price or compared to competitors.
Companies that rely on certain clients for a large percentage of their revenue are at risk should that client terminate or decide not to renew that contract. The client can even go bust and leave the company with a liability, as they have done the work but not collected the cash.
I warned on this about a company that signed up a large contract. It failed to collect the cash and went bust in less than six months after this tweet.
It is not necessary to have a recurring revenue business model. Companies can do very well providing a repeated service to customers over several years, for example support services companies. However, it is necessary for us to be aware of the risks of large clients for the company. We can check detailed descriptions of the revenue breakdown in the Annual Report.
Does the company have good assets or a strong balance sheet?
Companies that have weak balance sheets or poor assets leave investors at risk of being out of pocket. Balance sheets are covered in Chapter Seven. Weak balance sheets can mean not having enough cash in order to cover working capital, which means the company has an unexpected cash call where they are not able to function in their day-to-day operations. It can also mean they are laden with debt that they might struggle to pay off if they were to lose a client from the business. Remember, if the owners of the debt want to recall their borrowings, and the company cannot renegotiate elsewhere, the company can go bust!
Poor assets can mean that capital expenditure is required in order to improve them. For example, a restaurant chain’s units may be outdated and deteriorating badly. If the chain does not deploy capital in order to freshen up and improve their units, customers may end up going elsewhere! In the same manner, a software company that has not invested in their platform may have an asset that is now far behind the competition, and will soon no longer provide an edge and become useless.
We should always check that a company has enough cash or cash equivalents to sustain its operations, and always make sure that the company has good assets.
Is the company profitable?
If a company is not making a profit then it cannot deliver any dividends for shareholders. It is also unlikely to grow sustainably into the future and may be at risk of issuing further equity and diluting shareholders.
Some companies like to make it harder for us to see if they are profitable or not. For example, a company with a £9 million loss may then dispose of an asset for £10 million. This would mean the company would report a profit of £1 million despite the fact that the asset sale has nothing to do with their core business. If this asset sale was a one-off sale and therefore exceptional, the company’s real bottom line was a £9 million loss!
It’s not enough for us to just look at the bottom line (profit). We need to look higher and see how that figure was reached. Companies that capitalise costs (put costs onto the balance sheet rather than through the income statement), and companies that make non-recurring asset sales for cash, can all report a profit and give a false picture of the true state of the business.
What are the safest shares to buy
The safest shares to buy are often stocks that meet the checklist above.
This is just a general checklist and you can create your own, but profitable companies that have strong balance sheets and an economic moat, are able to scale and don’t have significant customer risk, that are run by management with skin in the game often outperform stocks that don’t.
Look for shares that also have a strong Return On Capital Employed (ROCE).
You can think of ROCE as the company’s own interest rate. It’s the rate of return that the company received on capital employed within the business.
ROCE looks at the company’s capital efficiency and a high ROCE ratio is a typical trait of a successful stock.
It’s worth noting that there are many subscription services out there that claim to be able to tell you the best stocks to buy if you only sign up for a monthly fee.
The reality is companies such as The Motley Fool UK rely on these subscription fees to make money, and not by investing in the stocks its writers pick.
You should also be careful of share advisors and stockbrokers. Personally, I find it difficult to see how an Independent Financial Adviser (IFA) can be independent when they make a commission selling a certain product. I’m sure many IFAs are reputable and do have their clients’ best interests at heart but it is something to be wary of.
Should I invest in more stocks
I’m no financial adviser and so I can’t offer advice.
However, my opinion is that you should assess your own financial situation.
The stock market should be viewed with a timeframe of at least five years and more – therefore if there’s a chance you need the money before that time period then you shouldn’t invest.
But over the long term, the stock market compounds wealth and will continue to do so if you believe that the economy will always grow and prosper over the long term.
The best shares will be able to navigate any economic environment and any short-term setbacks can provide a timely opportunity.
There will always be booms and busts – hence the long term mindset required to ride out the troughs and profit on your investments.
How many shares should a beginner buy
Many beginner investors often get the terms stocks and shares confused. This is understandable because even the UK government calls the investment ISA a “Stocks & Shares ISA”.
Stocks is the plural of a company’s stock – meaning that if someone has invested in three stocks then they have three separate investments.
However, if someone says I have three shares, what they should mean is that they have three shares in one company.
I believe that for beginner investors who don’t want to invest in low-cost passive index tracker funds then 10 stocks is a good number to aim for an investment portfolio.
This is because having 10 different investments diversifies your portfolio and reduces your individual company risk.
For example, if one company has a profit warning or issues other bad news, then the stock’s share price will likely fall in value. But if you have 9 other companies, this diversification reduces the total downside across your account.
10 companies also gives enough diversification against sector risk – unless all 10 of your stocks are in the same sector!
Where should I invest my money now
I’m not a financial adviser and can’t offer advice. Firstly, because it would be illegal. And secondly, I have no wish to have any responsibility for your investment portfolio.
However, the companies I’m investing in today are companies that have strong macroeconomic tailwinds. They have strong balance sheets and are solid investments.
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