The Motley Fool

2 UK stocks I’d buy for a K-shaped recovery

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

New normal sign on desk
Image source: Getty Images

In terms of the shape of the economic recovery ahead, I believe there’s a good chance it will be ‘K-shaped.’ With this form of recovery, some areas of the economy get stronger, while others get weaker.

Fundsmith portfolio manager Terry Smith appears to share my view. In his recent letter to investors, he wrote that the concept might “help to explain what may happen.”

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Here, I’m going to discuss two UK stocks I’d buy for a K-shaped recovery. In my view, both are well placed for the ‘new normal’.

An online retailer for a K-shaped recovery

One UK stock that strikes me as a good way to play a K-shaped economic recovery is online fashion retailer Boohoo (LSE:BOO). While high street retailers have struggled over the last year, its sales have exploded. For the four months ended 31 December, for example, revenue was up 40%.

Boohoo has a number of things going for it at present. Firstly, it’s benefitting from the shift to online shopping. Between now and 2025, online fashion sales are expected to boom.

Secondly, it’s benefitting from a number of lifestyle trends. The increased focus on health and wellness is boosting demand for athleisure wear. Meanwhile, the increase in the number of people working from home is boosting demand for loungewear.

Boohoo has made a number of acquisitions recently that could boost growth significantly. Last month, it acquired the Debenhams brand. This month, it has picked up the Dorothy Perkins, Burton, and Wallis brands. The company believes these brands strengthen its position as a leader in the global fashion and beauty e-commerce markets.

There are some risks to be aware of here. One is integration risk. There is no guarantee the recent acquisitions will be successful. Another is a potential UK tax on online retailers. There’s also some valuation risk, as the forward-looking P/E of 35 doesn’t leave a huge margin of safety.

Overall however, I see a lot of appeal in Boohoo shares. I see it as a good play for a K-shaped recovery.

A UK disruptor

Another UK stock that I believe could do well in a K-shaped recovery is Keystone Law (LSE: KEYS). It’s an innovative platform-based legal firm that allows its lawyers to work remotely and is therefore very scalable. Last year, it was named ‘Law Firm of the Year’ at the Lawyer Awards.

Keystone posted a very encouraging trading update last month in which it advised that trading throughout December and early January had been “exceptionally strong”. As a result of this performance, the group advised that adjusted profit before tax for the period would be “materially ahead” of market expectations.

Looking ahead, Keystone is expected to keep growing. City analysts expect the company to generate revenue and net profit growth of about 10.4% and 9.8% respectively this financial year.

KEYS shares currently trade on a forward-looking P/E ratio of about 40. This means there is certainly some valuation risk here. If future performance is poor, the shares are likely to fall. It’s also worth noting that this is a small-cap company with a market cap of less than £200m. Stocks of this size can be highly volatile.

All things considered, however, I think this growth stock looks attractive. I see it as a good one to own in my portfolio for a K-shaped recovery.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon owns shares in Boohoo and Keystone Law and has a position in Fundsmith.  The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.