Even before the Covid-19 pandemic struck, the UK had lagged behind the global economy for several years. Arguably, this was largely due to a lack of productivity growth as a result of companies' low capital expenditure.
Moreover, the Brexit-induced uncertainty meant that projects companies may have had in the pipeline were put on hold. Then, when Covid arrived and rapidly spread throughout the country, the British economy contracted faster than its major counterparts.
Following the rollout of a successful vaccination program, however, the UK economy has bounced back with real vigour. Sales of goods and services are picking up faster than expected and some companies are using supply shortages to push prices up.
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
It is usually in difficult periods that companies focus on costs and become leaner as organisations. Then, when sales pick up, operating margins can expand substantially. With the return of pricing and output growth, we expect capital expenditure to pick up, further supporting the UK’s economic recovery.
Seek out stocks of all sizes
Our approach focuses on a diversified portfolio of UK companies across the market-cap spectrum to achieve both income and capital growth over the medium to long term. As the economy continues to reopen and lockdown restrictions are eased further, we believe this presents an interesting opportunity to be invested in a broad selection of UK companies.
One such opportunity we have added to the portfolio is Headlam (LSE: HEAD), the leader in the distribution of floor-coverings in the UK. The company’s sales to residential customers are already running ahead of 2019 levels, reflecting the savings that households have built up during the pandemic and want to invest in their homes. The recovery in sales also comes at a time when management have taken substantial costs out of the business, including consolidating the delivery network and the distribution centres.
Companies that have successfully worked at product development are also benefiting from an increase in demand. One example is Morgan Advanced Materials (LSE: MGAM). It services a wide range of markets with the specialist materials (including carbon and advanced ceramics), including healthcare, semiconductors and renewable energy. Over the last year, the company has reduced its debt and increased its productivity, and we believe this provides a bright outlook.
The best of the banks
It is not only in manufactured goods that we think there are opportunities. In our view, the positive economic backdrop should also benefit financials such as Barclays (LSE: BARC) bank. The company has a low valuation and a growing economy should be a beneficial environment for it. In addition, the provisions the group has made for bad debts were made at a time of real concerns about the UK’s outlook and therefore should not be fully needed, in our view.
We believe the strength of profit growth could surprise investors across a wide range of companies. Incidentally, it is the cash generated by these profits that helps pay dividends and the improved outlook for payouts is arguably the key to growing confidence among investors.
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
