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.
-
Five years on: what did Covid cost us?We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
-
New tax year changes: how much will you have to pay in 2025/26?The new tax year will start on 6 April, 2025. We look at how taxes and allowances are changing and how they will affect you.
-
Three top-notch Taiwanese companies cashing in on the advent of AIOpinion Eric Chan, investment director and co-manager of the Aberdeen Asian Income Fund, highlights three potential Taiwanese winners in the technology industry
-
Find tomorrow’s Asian giants while they are still smaller companiesOpinion Nitin Bajaj, portfolio manager of the Fidelity Asian Values trust, picks three Asian companies to invest in.
-
Cash in on the growth prospects of Europe's companiesOpinion Marcel Stötzel, co-portfolio manager of the Fidelity European Trust, selects three stocks
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
Leading companies cashing in on India’s compelling growth prospectsOpinion Ewan Thompson, manager of the Liontrust India fund, highlights three companies he thinks are well-positioned to generate attractive economic returns
-
Should you invest in emerging markets?Emerging markets offer strong, long-term growth and excellent value, says Rupert Hargreaves
-
The best ways to invest in Vietnam – Asia’s communist dynamoVietnam has long been one of our favourite markets. The prognosis remains auspicious, says Alex Rankine.
-
India is a new global powerhouse — should you invest?India’s growth rate has slowed recently, but there is still ample scope for investors to benefit from its development.
