Shares in oil giant BP (LSE: BP), diagnostics business Novacyt (LSE: NCYT) and fast-fashion firm Boohoo (LSE: BOO) were in huge demand by clients of investing platform Hargreaves Lansdown last week. Today, I’ll be asking whether Foolish investors should follow the money.
Dividend in doubt?
BP may have been the third most popular buy last week but I’m not inclined to join the queue. Make no mistake, the £42bn-cap is in a tricky spot.
A struggling oil price in the aftermath of the global lockdowns has seen the FTSE 100 giant fall to its lowest valuation in 26 years. With Covid-19 cases continuing to rise around the world (particularly in Europe and the US), it looks unlikely things will change anytime soon.
Unfortunately, the coronavirus isn’t BP’s only problem. Talk about the ‘death of oil’ may be premature, but the push towards cleaner forms of energy shows no signs of slowing down. Indeed, this could accelerate further if renewables fan Joe Biden secures the keys to the White House early next month.
BP must reinvent itself. But this will take time and barrels of cash. As such, I suspect the company may be forced to cut its dividend once again. So, while some investors may be buying for the post-virus rally, I suggest anyone looking at BP for income should look elsewhere.
Having soared from 14p in January to a staggering 1,194p by the end of last week, it’s fair to say Novacyt has been one of the best investments anyone could have made in 2020. Based on last week’s buying activity, there could be more to come.
As a supplier of Covid-19 tests, Novacyt has seen its revenue go through the roof. As long as we’re without a vaccine, demand for the company’s products looks likely to continue far into 2021. Even if a medical breakthrough is made before the end of the year, it’ll still take time for sufficient amounts of a vaccine to be produced and distributed.
The problem is ascertaining how much of this positive outlook is already priced in. I’d say quite a lot. Another concern is the possibility of a rival producing a quicker test and pinching contracts from under Novacyt’s nose.
For me, the shares remain a high-risk pick. Like BP, anyone thinking of buying now should ensure they’re sufficiently diversified elsewhere first.
Taking top spot on the list of most popular stocks with Hargreaves Lansdown clients last week was Boohoo.
Perhaps this shouldn’t come as a surprise. News that auditor PricewaterhouseCoopers had resigned over concerns about the company’s reputation caused the shares to fall heavily earlier in the month. It was surely only a matter of time before the contrarians piled in.
Among those buying was co-founder Mahmud Kamani. The fact he snapped up 300,000 shares for a cool £729,000 no doubt motivated others in the market to buy as well.
As a holder of Boohoo, I’m content to ask just one question right now. Will the online retailer’s recent woes still matter in a few years? I think it very unlikely. After all, Boohoo remains a brilliant business based purely on how it’s trading.
So long as the company does address concerns relating to its corporate governance, I’m confident this period of share price weakness will prove temporary.