Despite the economy suffering its biggest setback in 300 years, we think the building blocks are in place for a strong recovery in the second half of 2021. We believe there is considerable pent-up demand for both leisure and retail spending, and thanks to the high savings rate during lockdown consumption could be a driver of strong GDP growth from the summer onwards.
In addition, the Brexit trade agreement gives businesses certainty around trading arrangements with the EU, allowing companies to invest with confidence. Assuming the pandemic doesn’t take an unexpected turn for the worse, the pace of economic recovery could be higher than many people expect.
While the events of the last year have taken a heavy toll on individuals, companies and the economy, we face the future with optimism. We believe our approach of investing in good-quality businesses at sensible valuations remains the correct strategy for achieving long-term returns.
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For stockpickers such as us, the small-cap end of the market is an exciting place to be. By way of illustration, we believe that the three stocks below are particularly well placed to be able to contribute meaningfully to overall returns for the Invesco UK Smaller Companies Equity Fund.
Essentra: profits in plugs and packaging
Having lost its way under previous management, Essentra (LSE: ESNT), a manufacturer and supplier of caps, plugs, plastic, fibre, foam and packaging products, has been undergoing a transformation. The upshot is that the company is now concentrating on its higher-margin areas of component manufacture and distribution, healthcare packaging and filter products. All these areas offer significant growth potential, both organically and through acquisitions. The company’s transformation has gone largely unnoticed by the stockmarket, leaving the shares trading on a lower valuation than many other similar businesses.
RWS Holdings: a top translation business
RWS Holdings (Aim: RWS) recently merged with SDL to create the world’s largest translation business. RWS has a strong reputation for quality and leads the market in the highly specialised areas of patent and healthcare translation. The merger with SDL offers the potential for both significant cost savings and an acceleration in growth as the group harnesses SDL’s market-leading translation technology to expand into new fields.
Hollywood Bowl: a star performer
Hollywood Bowl Group (LSE: BOWL), one of the UK’s leading tenpin bowling businesses, has come under pressure in the pandemic, like all leisure companies. While its premises are closed for now, we believe that there is a lot of potential for it to recover strongly once lockdown is over.
The sector has suffered from a lack of investment for years and we have been impressed by how Hollywood Bowl has taken the opportunity to upgrade its offering to include better-quality food and a more premium experience overall – at a price that remains relatively affordable.
The business has significant growth potential, both from opening additional bowling outlets and from its new indoor-golf format Puttstars. The shares are still trading well below their pre-pandemic level.
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IMF suggests “refinements” to Rachel Reeves’s fiscal rulesThe IMF has upgraded the UK’s growth forecast but wants Reeves to refine her fiscal rules to avoid unnecessary spending cuts or tax rises
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Invest like a tortoise, not a hare to avoid market volatilityOpinion Hassan Raza, Portfolio Manager at CG Asset Management, highlights three favourite investment companies
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Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
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Streaming services are the new magic money tree for investors – but for how long?Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
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'Pension funds shouldn't be pushed into private equity sector'Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
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Greg Abel: Warren Buffett’s heir takes the throneGreg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
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Who will be the next Warren Buffett?Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
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Will Comstock crash – or soar?Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
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'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
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Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
