The recent indiscriminate sell-off has produced some attractive investment opportunities for selective long-term investors. In the near term, however, markets are likely to remain very volatile. While we are now starting to see some lockdown restrictions easing, I expect to see a very different backdrop and level of economic activity over at least the next six to 12 months from the one we have been used to.
Looking further out, however, I think the sharp drop in the oil price and the unprecedented monetary and fiscal stimulus will be positive for the UK economy (as well as for the global one) and will help to offset some of the negative effects of the lockdowns.
We focus on unloved companies undergoing positive change and are willing to hold them until their potential value is recognised by the wider market. It is also critical to understand the potential downside to limit possible losses. Moreover, given the huge degree of uncertainty about future outcomes, diversification is now more important than ever. I am therefore focusing here on three very different businesses.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Cashing in on communication
I have recently increased my position in communication-equipment firm Ericsson (Stockholm: ERICB). I first bought it in early 2020 to take advantage of a significant expected increase in telecom-related capital expenditure and a reduction in competition.
Most obvious defensive sectors such as staples, utilities and pharmaceuticals have benefited from the sell-off and gone up materially as a percentage of the benchmark. However, the one product we are all using far more since the crisis, communication services, hasn’t. The sector is getting a short-term fillip from a reduction in the number of people swapping networks to chase the cheapest deal; their priority for now is the quality of mobile packages and calls.
Ericsson is also the largest producer of global telecoms equipment and therefore a key beneficiary as telecoms carriers invest to improve their networks for both 5G mobile technology and simply to cope with the unusually heavy current use of their networks.
Sturdy insurer will shrug off downturn
The sell-off has also prompted me to add insurance provider Legal & General (LSE: LGEN) to my holdings. Life insurance looks attractive from both a valuation and fundamental point of view. Legal & General’s operational performance remains solid given the market conditions and its balance sheet should be strong enough to withstand the downturn. The stock is likely to remain volatile in the near term, but offers significant upside over the longer term.
Educational publisher Pearson (LSE: PSON) has struggled over the past 18 months, but the outlook is auspicious. A rise in newly unemployed workers has historically been good news for the higher-education sector, while about 20% of the company’s revenues come from online learning, which should see greater usage from online schools and college programmes. The business is set to recover quickly when social distancing is relaxed and usually performs well in a recession – a quality investors seem to have forgotten.
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsLooking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
