The market has unsurprisingly welcomed the news that lockdown restrictions are to be slowly lifted over the next few weeks. Arguably the most important detail, as far as the economy is concerned, is the re-opening of all non-essential shops by 15 June. With this in mind, here are three potentially great ISA buys that might do better than most in the new retail environment.
Cheap ISA buy?
The fact that shops are being allowed to reopen does not mean that consumers will be in the mood to spend like there’s no tomorrow, of course. They may, however, feel the need to replace some of their more comfortable ‘lockdown clothing’.
For me, this could be good news for Primark-owner Associated British Foods (LSE: ABF). Say what you like about the wares sold by this company — the fact that you can fill a wardrobe on the cheap could mean it does better than most during a recession.
Another attraction to ABF is that it isn’t solely dependent on the success of its stores — it has its fingers in the grocery, agriculture, sugar, and ingredients markets. This makes it a good ISA option for defensive-minded investors, in my opinion.
True, the shares haven’t done particularly well over the last few years, but consumers’ desire to find value for money in tough times could mark a change in direction.
If we assume that analyst predictions on earnings in FY21 are still roughly correct, the stock also changes hands at a really-rather-decent valuation of 14 times earnings.
My second pick of retailers would be FTSE 100 sports and casualwear firm JD Sports (LSE: JD).
Boasting excellent free cash flow and experienced management, this business looks set to go from strength to strength. Having established itself as a go-to destination for trainer lovers in the UK, it’s now targeting large overseas markets such as the US.
Is a lot of this already priced-in to the shares? Quite probably. Like many stocks, the optimum time to buy was a couple of months ago. From mid-February to mid-March, JD lost two-thirds of its value. The share price has more than doubled since.
Hindsight is a wonderful thing, of course. Nevertheless, JD is one of only a handful of FTSE 100 stocks I’d feel comfortable holding within an ISA for the very long term. And companies like this rarely stay cheap for long.
My third and final selection is something of a wildcard: bicycle-seller and auto parts retailer Halfords (LSE: HFD).
I’ve actually been very bearish on this company in the past, partly due to its lack of an economic moat. But the coronavirus pandemic has altered my stance somewhat. In case you haven’t noticed, cycling has been hugely popular over recent months as long-distance travel has been prohibited.
To be clear, I don’t think Halfords is a ‘buy-and-forget’ stock. There’s no guarantee that those who say they now plan to ride to work rather than catch public transport will actually do so. There’s also quite a bit of debt on the balance sheet.
Even so, the next set of numbers released by the company is likely to be very good indeed. Those buying a small amount now for their tax-efficient ISA could still do well.