It is 12 months since equity markets hit their Covid-19 lows. Few at the time would have predicted the scale of the subsequent market rally, or the speed with which the market’s focus has shifted from concern over companies surviving the pandemic to optimism about those positioned to benefit as economies emerge from lockdown.
We believe that this shift in sentiment has led many more cyclical, industrial, and consumer stocks to trade at generous multiples of fully recovered profits as a rebound becomes priced in. However, there remain compelling but less obvious opportunities that should benefit from a “normalisation” post-lockdown. We have been looking for companies where, on top of a near-term recovery, we may see the virus benefit their end markets and where management can improve their businesses. Here are three examples.
The changing healthcare market
Spire Healthcare (LSE: SPI) is a leading private-hospital operator in the UK. Private hospitals have had their capacity reserved during the pandemic, at cost, to support the NHS. Now activities are returning to normal and the healthcare landscape has fundamentally changed. Backlogs of both private and NHS procedures will take years to clear, with private-sector support needed to achieve this. Spire is well placed to benefit.
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
The pandemic has also shifted patients’ willingness to engage with healthcare services digitally. Spire rolled out online tools in the crisis to enable digital pre-assessment. Customers enjoy improved convenience while Spire benefits from efficiency gains. We believe further such self-help opportunities exist. Spire shares have had a good run, but continue to trade below a freehold property-backed book value. At around nine times earnings before interest, taxes, depreciation and amortisation (Ebitda) they still offer great medium-term value.
Digitising data services
Wilmington (LSE: WIL) is a provider of data, training, and events to a variety of markets. Despite benefiting from significant recurring revenues, the portion of the business reliant on in-person events and training has inevitably been hit by Covid-19. Wilmington should now see these services bounce back, but more excitingly it has used the pandemic to accelerate its shift to enhanced digital delivery of its services.
Digitising its content allowed Wilmington to keep offering services to its customers through the pandemic, gaining share from competitors. This digital-ready content can now more easily be packaged into new products, served to new customers and accelerate growth. The shares are still 20% below their pre-pandemic level, despite the firm’s improved prospects.
A hidden recovery
Clinigen (LSE: CLIN) provides hard-to-access medicines to healthcare professionals and clinical trials globally. Demand for its services dipped as hospital treatment and clinical trials slowed in lockdown. This demand is set to recover. Clinigen can also benefit from an increased focus on drug distribution as vaccines roll out; new product launches; and cost synergies from recent acquisitions.
Despite the recovery potential, the shares trade on a forward price/earnings (p/e) ratio of ten. While gearing is high, the company has strong underlying cashflow. As leverage falls the shares are likely to trade nearer the long-term average p/e of 15.
-
Equity release rates drop – is it worth unlocking cash from your home?News Lifetime mortgage rates are falling from their record highs - is equity release worth another look?
-
Hargreaves Lansdown launches fixed-term cash ISA product
savings/hargreaves-lansdown-fixed-cash-isa-launch Investment platform Hargreaves Lansdown is to offer fixed term cash ISAs via its Active Savings platform paying 4.8%, tax free - but is it any good?
-
The fallout from the war on landlords
Investors fleeing the market and the rise in rents are affecting us all.
-
Eight small-cap trusts to bet on
Funds investing in market minnows are out of favour, but the cycle will turn. Here are the best bets.
-
Trust in US TIPS to beat inflation
In an inflationary market TIPS, the US Treasury Inflation-Protected Securities are most compelling says Cris Sholto Heaton.
-
What is Vix – the fear index?
What is Vix? We explain how the fear index could guide your investment decisions.
-
Time to invest in the next agricultural revolution
As the global demand for food increases, food producers are seeking to lower their carbon emissions. Technology will help meet both goals.
-
Asia’s hidden gems: Three undervalued Asian stocks
Personal View Fidelity's Nitin Bajaj highlights three favourite Asian stocks.
-
Uber's switch to profitability is an opportunity for investors
The ride-hailing platform has just reported its first operating profit and its future looks bright.
-
The bond bust bodes well for equities
Rising yields on government debt herald the end of the free-money era and good news for investors.
