Deja vu, Groundhog Day – call it what you like, we are in national lockdown again.
And while that well-known phrase ‘past performance is no indicator of future results’ still applies, are there any investment lessons we can learn from the first lockdown?
Back in March, we highlighted possible stock market winners in the event of a lockdown – so how did they do and are they still worth considering?
Expansion plans: Just Eat Takeaway is in the middle of a merger with New York-listed Grubhub to create an international food delivery giant
SUPERMARKET SALES SOAR…BUT SO DO THEIR COSTS
Panic-buying at the tills, empty shelves in supermarket aisles, no delivery slots for weeks. We saw all these traits reappear in the last few days as households sought to stockpile ahead of lockdown.
From an investment point of view, some supermarket stocks have performed remarkably well this year. One of the big winners has been online retailer Ocado. From a share price of £12.66 on March 23 – the date of the first national lockdown – it has risen strongly ever since to above £25, a rise of more than 100 per cent.
But it’s a different picture at Tesco which at one point saw its stock market value eclipsed by Ocado. Trading at £2.12 on March 23, it peaked at £2.48 on May 13, but has now come back down to £2.14.
While it has seen sales rise during the pandemic, it has also had to invest heavily in its online delivery service and arrange social distancing within its stores. Sainsbury’s share price is little changed, going from £1.99 in late March to £2.02 now.
Tom Sieber is markets analyst at wealth manager AJ Bell. He say: ‘Supermarkets saw a sales boom in the early stages of the first lockdown but sentiment towards the sector began to wane as it became clear the surge in revenue was accompanied by lots of extra costs.
‘This time, online specialist Ocado may again come to the fore, though the likes of Morrisons, Tesco, Sainsbury’s and Ocado’s new partner Marks & Spencer are now better placed to serve customers stuck indoors, having brought on more capacity for home delivery.’
It isn’t just food retailers that have performed well during the pandemic. Back in March, Richard Hunter, head of markets at wealth manager Interactive Investor, said: ‘Supermarkets are currently seeing goods flying off the shelves, but conceivably clothing retailers could, too. The jewel in Next’s crown, for example, has long been its online offering.’ Hunter was right. In late March, Next’s shares were trading at £35.54. Now, they are above £60.
TAKEAWAY STOCKS ARE STILL TASTY
Stock market-listed companies such as Just Eat Takeaway, Uber Eats (part of Uber), Delivery Hero and longer-established fast food delivery chains such as Domino’s Pizza and Papa John’s were popular after March as a ban was imposed on eating out. With a second national lockdown in force, the situation is very much the same. Domino’s shares have increased in value by 23 per cent – to £3.39 – over the last seven months and the chain is still recruiting and still paying its dividend. US-listed Papa John’s has also seen its share price jump by 52 per cent to $82.
Jason Hollands, a director of wealth manager Tilney, says: ‘Among the listed companies I mentioned in March was UK-listed Domino’s Pizza Group. Its share price has risen 3 per cent since the start of the year against the backdrop of a 20 per cent decline in UK equities overall.
‘With another lockdown, I expect the business to trade well in the near term.’
Just Eat Takeaway is in the middle of a merger with New York-listed Grubhub to create an international food delivery giant.
BIG TECH GAINS…BUT HAS THE BOOM ENDED?
Technology stocks were big winners of the first lockdown with people working online at home, leading to a rise in the use of video conferencing services such as Zoom, Skype and Teams – the last two owned by US giant Microsoft.
Second time around, technology is still going to play a key role in the way businesses operate, but it won’t be as dramatic.
Hollands says: ‘Technology companies have been major beneficiaries of the pandemic as people have spent more time working and entertaining themselves from home – and shopping more online.
‘But much of the corporate spending in new technology has been done, so you can expect the same rate of growth in new demand for services such as Zoom and Skype.’
In March, Ben Yearsley, a director of Shore Financial Planning, recommended investment trust Polar Capital Technology as a good way for investors to make money from rapid technological change.
Its shares have risen in value from £12.64 to £22.50. He says: ‘Technology has been the big investment winner of the last seven months and share prices in tech stocks and technology investment funds have risen dramatically.
‘In the short-term some of the shares might look a little overcooked, but technology is a clear long-term winner from the pandemic.’
ALWAYS INVEST FOR LONG TERM
With stock markets in a turbulent state, should canny investors wait before plunging in?
Ben Yearsley, of Shore Financial Planning, says: ‘I prefer choosing my investments for the long term – and then sticking with them. I do this because I have no idea when the bottom or top will be for a particular investment.
‘You should identify the long-term themes impacting on the economy, find out how to invest in them and then stick with them. You can reassess periodically to check your original investment is still correct.’
Interactive Investor’s Richard Hunter says: ‘This is a difficult time to be investing given the continued threat of Covid-19, deteriorating US/China relations, UK-EU discussions and a faltering global economic recovery. The fact remains, though, that investment is for the long term.
‘Identifying quality companies and staying with them – ideally also reinvesting dividends to reap the rewards of compounding – remains an investment strategy which is simple and well-proven. Drip feeding cash into investments every month can help remove some of the worry about market timing.’
IT’S GAME ON FOR ENTERTAINMENT
Netflix was tipped as one of the obvious winners of the first lockdown as cinemas closed. But it hasn’t had it all its own way as Disney+ and Amazon Prime joined the fierce battle for market share.
On March 23, the Netflix share price was $360 and is now $514, although the climb upwards has not been steady. Hollands says: ‘It was noticeable that Netflix recently said it had added 2.2million subscribers in the last quarter – well below the 3.3million that analysts expected.
‘Slowing growth might be a sign that the pandemic-driven boost is starting to wane.’
Scottish Mortgage, a FTSE100- listed investment trust managed by Baillie Gifford, has Netflix, Amazon, Alibaba (the world’s largest ecommerce group), Tencent (the world’s largest video game company) and Delivery Hero among its top ten holdings.
It’s a trust that Teodor Dilov, fund analyst at Interactive Investor, recommended in March. He says: ‘Scottish Mortgage’s share price has risen by 86 per cent – ahead of other funds we liked such as First Trust Dow Jones Internet, VanEck Vectors Video Gaming and eSports. The enforced coronavirus lockdown has played into their hands.’
Unsurprisingly, there has been a boom in the downloading of apps and games.
Interactive Investor’s Richard Hunter said back in March that UK stock market-listed Frontier Developments was set to do well from self-isolating gamers with more leisure time.
Shares have since gone up by 149 per cent. Hunter says: ‘With the second lockdown, Frontier Developments could benefit again although the likelihood is that any rise in its share price would be less pronounced.’
Hunter also believes Amazon remains a ‘preferred play’. He says: ‘It offers investors the chance to buy into the ongoing retail revolution. Often blamed for the demise of physical shopping outlets, the convenience that Amazon has brought to the shopping arena is evidenced by its phenomenal growth.’
Amazon’s shares traded at $1,903 on March 23 – and were $3,286 on October 27 – a rise of 75 per cent.
Leigh Himsworth is a portfolio manager with investment house Fidelity International. In March, he believed that computer gaming software specialists Codemasters, Frontier Developments and Team17 would enjoy a good lockdown. He expects similar growth now.
‘Rather than being a new shock to markets, the lockdowns have acted to distinguish between the immediate winners and losers and reinforce the structural trends that have been evident for some time.’
HEALTH AND FITNESS IN PEAK CONDITION
Russ Mould, investment director at AJ Bell, said in March that Belfast-based listed company Kainos could be a winner from the increased demand put on the NHS.
He said: ‘One of Kainos’s key revenue streams is helping the NHS with workflow and digitising medical records. With the NHS set to receive additional Government funding, and potentially facing an influx of patients, Kainos could be a helpful partner.’
His prediction was spot on – Kainos shares were £5.90 on March 23 and are now trading at £13.60.
Today, Tom Sieber, Mould’s colleague at AJ Bell, says: ‘Companies that are helping with the economy’s digital transition could continue to perform well.
‘They include Kainos but also smaller operators such as digital consultancy The Panoply Holdings which designs tools that can fast track clients’ e-commerce and internet delivery ambitions.’
He also says that recently listed The Hut Group may see demand migrate to its health and fitness and beauty websites as well as clamour for its Ingenuity platform which already picks up IT and logistical requirements for a client base which includes PZ Cussons and Nestle.
And with gyms shut, US-listed Peloton Interactive is seen as a share to watch.
While not immune from coronavirus fallout, it has picked up custom from locked-out gym bunnies. Its shares went from $23 to $127, a rise of 452 per cent.