Speculating about the timing and magnitude of the British economic recovery this year is pointless – not because it doesn’t matter but because we have no control over it. Investors should bear in mind that the best companies are those using this time to ensure they can survive and even thrive despite the highly uncertain outlook for their businesses.
Managing liquidity and ensuring their relevance in a changing world will be important regardless of the scale of recovery. Here are some examples of the firms we think are eager to control their own destinies.
Unilever: an evolving leader
A real danger in 2021 is that we see the so-called post-2008 “expensive defensives” as backward-looking relics amid the scramble for technology stocks. Arguably, once the headline tech story starts to fade, the next question will be which firms can sustainably integrate tech into their models to boost their success or, at the very least, keep up with rivals and the wider market.
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Unilever’s (LSE: ULVR) e-commerce revenues grew by 76% year-on-year in the last three months of 2020, according to its latest results. That means online sales made up 10% of total revenues. And while some firms are struggling to shift their whole proposition online (just ask the high-street fashion retailers) no-one is expecting digital Domestos. So the company might not be judged initially on its adoption of tech but it definitely knows its brands have to stay relevant in an online world. As long as it innovates and meets its consumers where and how they prefer, potential rivals should struggle to take market share from the Anglo-Dutch consumer-goods giant.
Games Workshop: shrugging off the pandemic
The pre-pandemic growth story at miniature-wargames manufacturer Games Workshop (LSE: GAW) is still intact. Lockdowns have encouraged people to take up new hobbies and given players plenty of time to paint their figurines. The firm has paid very close attention to its cash balances and, despite over 500 stores being closed, it has managed to keep up the trajectory shareholders have grown used to. A straightforward business model, committed user base, clear financials and a high return on capital employed (a key gauge of profitability) mean Games Workshop is still attractive to cautious long-term investors.
There’s a temptation to ignore stocks with higher valuations, such as Unilever or Games Workshop. But when a firm sets a promising course and takes its future into its own hands, what’s to stop it becoming even more expensive? Draw a line over Games Workshop’s V-shaped recovery and it’s as though the pandemic never happened.
Ascent Resources: an oil company worth exploring
The turnstile has stopped spinning and new management is in place at oil and gas explorer Ascent Resources (Aim: AST). A revised strategy and a higher-quality shareholder register in late 2020 could release significant value. The group became a basket case under the previous managers, not least thanks to a stand-off with the Slovenian government, but the new team has used 2020 to diversify and ensure the firm’s longevity doesn’t depend on just one project. Few rivals can boast assets like Ascent’s. With its Cuban operations in the pipeline and a more level-headed approach to negotiations with the Slovenian authorities, it’s worth another look.
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