A V-shaped global recovery could see an investment in these three companies well-placed to profit.
Judging from comments and polls on the Fool's various discussion boards, it's clear that many of us have been expecting a ‘W'-shaped or ‘U'-shaped economic recovery.
So when investment bankers Goldman Sachs go on record as saying that they don't believe that -- and that the recession and eventual recovery will be V-shaped, instead -- then it's time to sit up and pay attention.
The shape of the letters tells the story. A U-shaped recession sees a sudden slump -- which we've had -- followed by a long, drawn-out period of bumping along the bottom, and then a sudden recovery. A W-shaped recession sees economic contraction followed by recovery rather sooner than in the U-shaped scenario, but it's a recovery that proves to be transient, leading to a second contraction.
But according to Jim O'Neill, chief economist at Goldman Sachs, a V-shaped recovery is now the most likely outcome, based on a 20-country leading indicator measure that the bank maintains.
Positioning for profit
I have absolutely no idea if Mr. O'Neill is correct or not -- my own degrees in economics are far too far in the past. Judge Mr. O'Neill's remarks for yourself. But what I do know is that the picture that he paints is worryingly plausible.
And that furthermore, if he is right, then I and others are losing out on an opportunity to position our portfolios to profit from an economic recovery that comes sooner rather than later.
For if the recession is W‑shaped or U‑shaped, then staying defensive is important. But if Goldman Sachs is correct, and it's a V‑shaped recovery, then the time to go for growth is right now.
So with that thought in mind, here are three shares that are well-placed to benefit from that recovery. One point to stress: Goldman Sachs is talking about the world economy, not purely the British one -- so I've looked at shares with a decent amount of global exposure.
GKN
When I tipped GKN (LSE: GKN) back in March as a solid business that had strayed into value territory, its shares were at 65 pence -- well down from their June 2007 peak of 412 pence. As I write, they are at 119 pence, a rise that's comfortably outstripped the FTSE 100.
250 years old this year, the company employs around 40,000 people in 30 countries around the world, and has some of the world's biggest businesses as its customers. But the reason the shares have slumped 84% is that many of those customers are in the automotive and aerospace industries -- in addition to its other aerospace interests, for instance, the company manufactures wing components for Airbus aircraft, having bought Airbus' factory in Filton, near Bristol.
A V-shaped recovery should see conditions sharply improve in both industries -- and with that improvement, an uptick in GKN's order book, and share price. One caveat: alone among the three shares I'm mentioning here, GKN isn't presently paying a dividend. That said, its share price upside is likely to be the greatest of the three.
Tesco
Over the past few weeks, Tesco (LSE: TSCO) has cropped up again and again in articles here on the Fool. It's not difficult to see why. As Alan Oscroft noted yesterday, company has a long track record of growing its earnings and dividends while simultaneously expanding overseas.
Yet during much of the recession, its shares have under-performed the FTSE 100, especially during the past six months or so. As I've said a few weeks ago, I think the share price is a bargain, and on that basis I bought into the business back at the end of August.
Its exposure to the British consumer gives it a defensive quality, yet a growing proportion of its sales are to overseas customers -- a difficult trick to pull off, and one which no other comparable British retailer is even attempting. As overseas economies improve, Tesco is ideally placed to benefit.
HSBC
Like Tesco, it's easy to mistakenly pigeon-hole HSBC (LSE: HSBA) as a predominantly British business. That's a mistake: as I wrote back in July, it's actually the 21st largest business in world in terms of annual revenues, and has a presence in financial centres around the world.
Certainly, its shares have suffered during the recession -- but nowhere near as badly as shares in Barclays (LSE: BARC), Lloyds Banking Group (LSE: LLOY) and Royal Bank of Scotland (LSE: RBS) have done. Trading at 932 pence on June 15th 2007 when the LSE 100 peaked at 6732, its shares today stand at 656 pence as I write these words.
Having come under pressure pre-recession from active investors and hedge funds to be more aggressive in pursuing growth and taking risks, the bank is where it is today precisely because the board ignored such calls, and played safe.
Indeed, it's the only major British bank not to have required either bailing out by the government, or (as was the case with Barclays) big stakes being taken by rich foreigners.
In other words, it's a quality business that's presently cheap -- and also well-placed to benefit from a global economic recovery.
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> Of the shares mentioned, Malcolm has stakes in Lloyds Banking Group and Tesco.
