Investor appetite for UK stocks has taken a bit of a smack in recent days. It’s not a huge surprise given recent news flow surrounding the battle against Covid-19.
As Joshua Mahony, Senior Market analyst at IG, notes: “For all the positive efforts we are seeing to administer vaccines worldwide, the virus continues to pose a major risk given the ongoing mutations that are taking place.”
UK share investors have taken fright on signs that these Covid-19 variants could be resistant to vaccines. The merging of mutations in Britain and California has rattled nerves as well. It’s possible that cyclical shares like banks, energy producers and travel providers could come under fresh pressure should mutations continue to emerge.
It’s clear that stock investors need to remain on their toes in 2021. But I don’t plan to stop buying for my Stocks and Shares ISA any time soon. I think there are plenty of UK stocks that should thrive, even in the event of a long economic downturn.
A UK share I’d drink to
I think Diageo (LSE: DGE), for instance, is a perfect UK share for these uncertain times. It’s one I own in my ISA. Demand for alcoholic beverages remains stable during economic upturns and downturns. And this FTSE 100 firm’s drinks, such as Guinness and Captain Morgan, have the sort of colossal brand power that make them ‘must haves’, regardless of economic conditions. People will find a way to fit them in their shopping budgets, whatever the weather. This is why I think the company is worth every inch of its elevated valuation. Today, it trades on a forward price-to-earnings (P/E) ratio of 27 times.
These qualities explain why City analysts reckon Diageo’s earnings will keep rising over the medium term. Bottom-line rises of 3% and 12% are forecast for the fiscal years to June 2021 and 2022 respectively. A word of warning though. City forecasts can miss by a mile if trading conditions suddenly worsen. In the case of Diageo, profits could come under pressure if the Covid-19 crisis does indeed stretch on and bars, restaurants and pubs remain shuttered.
Space hero
Lok’nStore Group (LSE: LOK) is a UK share which could actually benefit from further coronavirus lockdowns. Retailers which operate online have seen demand for their goods balloon as shops have been closed. This has caused a massive scramble for space in which to store their stock, boosting occupancy levels across self-storage facilities.
That said, there’s always a risk that falling consumer confidence of late could lead to reduced demand for Lok’nStore’s spaces, both directly and as a result of falling e-commerce activity. Today, City analysts reckon earnings at this UK stock will rise 35% and 6% in the financial years to June 2021 and 2022 respectively.
This leaves it trading on a forward P/E ratio of 45. It’s the sort of elevated rating that could cause a severe share price correction if trading conditions do indeed begin to deteriorate.
