Three solid stocks to ride the UK’s rapid recovery

Professional investor James Henderson of the Lowland Investment Company, picks three of his favourite UK stocks that he thinks will benefit from the post-pandemic recovery.

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. 

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: BARCbank. 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. 

Recommended

When investors get over-excited, it’s time to worry – but we’re not there yet
Sponsored

When investors get over-excited, it’s time to worry – but we’re not there yet

When investors are pouring money into markets, it can be a warning sign of impending disaster, writes Max King. So how are fund flows looking right no…
26 Oct 2021
An investment trust that gives exposure to frontier markets
Investment trusts

An investment trust that gives exposure to frontier markets

An investment trust investing in small, illiquid emerging markets has disappointed, but deserves another chance, says Max King
26 Oct 2021
What does Rishi Sunak have in store for investors this Wednesday?
Budget

What does Rishi Sunak have in store for investors this Wednesday?

Rishi Sunak is unveiling his spending plans for the economy this week. John Stepek analyses areas which may be most hit by the budget.
25 Oct 2021
How rising interest rates could hurt big tech stocks
Tech stocks

How rising interest rates could hurt big tech stocks

Low interest rates have helped the biggest companies to entrench their positions. But what if rates rise?
25 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021