November’s been a great month for UK share prices. The FTSE 100 and FTSE 250 have struck levels not seen for months as hopes of a Covid-19 vaccine have exploded.
We could well be on the cusp of a new bull market. UK shares could continue soaring in value during 2021 should lockdown restrictions ease. And I reckon these particular stocks might surge in the weeks and months ahead.
#1: Riding the automobile rebound with UK shares
Vehicles are essential commodities in today’s society. Demand for them plummets during economic downturns as consumer spending levels sink and business activity falls. But their essential role means that they are products that enjoy some of the quickest recoveries in demand when the global economic outlook improves.
This bodes particularly well for UK shares that are involved in the manufacture of cars and trucks. This includes Trifast, a company which makes screws, bolts and other fastenings for major car manufacturers across the globe. It’s also good news for FTSE 100-quoted Melrose Industries following its 2018 takeover of GKN. The latter manufactures drivetrain components and powder metallurgy products for the car industry across more than 20 countries.
The share prices of UK-focused car retailers like Lookers and Pendragon could also rise during a broader bull market in 2021. But I wouldn’t touch these UK shares with a bargepole today. Fears of a no-deal Brexit have dented car sales in the UK, along with Covid-19. And a disorderly exit at the end of the year would likely smash the earnings recoveries of these firms in the months ahead. Uncertainty over British emissions legislation and its impact on petrol and diesel sales casts a pall over the longer term for these UK shares as well.
#2: Getting ready for leisure time!
Signs that the UK will be coming out of lockdowns in 2021 bode well for the broader leisure sector, of course. There’s some UK shares I wouldn’t consider buying, however, like Cineworld. A huge debt pile and the rise of streaming casts a pall over this particular stock next year and beyond. But there are plenty of others that provide lots to get excited about.
I’d happily invest in tenpin bowling centre operator Hollywood Bowl for example. It has a robust balance sheet to help it survive until its locations can open en masse again. And I’m encouraged to think its profits will rebound strongly on the soaring popularity of indoor bowling in Britain. Like-for-like revenues rose almost 10% during the five months to February 2020 as people hit the lanes in huge numbers.
The rolling back of Covid-19 lockdowns would also benefit hotel operators like Whitbread and InterContinental Hotels Group; theme park operators like Merlin Entertainments; and pub operators such as JD Wetherspoon and Marston’s. However, the battered balance sheets of some of these firms should make UK share investors think carefully before buying today, particularly as uncertainty over the efficacy and rollout of Covid-19 vaccines continues.
