Investor appetite for UK shares has calmed down again in recent weeks. Both the FTSE 100 and FTSE 250 have settled back after making a roaring start to March as fears over Covid-19 resurfaced. Demand for a great many ‘reopening stocks’ and cyclical shares has been particularly weak.
So-called reopening stocks are ones that will benefit from coronavirus lockdowns melting away and travel bans ending. A third wave of Covid-19 cases sprinting across large parts of Europe might delay the pick up in the global economy. And, as a consequence, profits at these UK shares might take a little longer to rebound. Which explains insipid investor appetite right now.
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However, I don’t plan to stop buying reopening stocks for my own shares portfolio though. The economic recovery will come. And many of these shares will experience explosive profits growth when it does. What’s more, shedloads of these reopening shares have the financial strength to survive a delayed rebound.
Betting on a recovering auto market
Trifast (LSE: TRI) is one of these shares I’m thinking of adding to my Stocks and Shares ISA in April. It makes many different types of fastenings, bolts and screws that are used in a variety of cyclical sectors like domestic appliances, electronics and general industrial.
I’m particularly excited by the expected recovery in the car industry (ING Bank reckons that global light vehicle sales will rise 7-9% in 2021). This is Trifast’s single-largest market, one that’s responsible for around a third of total sales. The bolt-maker has extensive operations across the manufacturing hotbed of Asia (it operates in the US and Northern Europe as well) to make the most of this opportunity too. Around 60% of the world’s automobiles roll out of factories in China, Japan, India and the surrounding areas.
There’s a possible fly in the ointment for this reopening stock however. The recovery in world manufacturing is causing steel shortages that’s pushing up lead times as well as input costs at the firm. What’s more, Trifast’s multinational manufacturing base leaves it at the mercy of adverse exchange rate movements. Wild swings in global currencies can take a big bite out of profits.
A reopening stock that looks cheap to me
That said, City analysts don’t think these issues will stop earnings bouncing back strongly at Trifast. At least for the time being. Current forecasts suggests annual profits will rise 26% and 21% in this fiscal year and next. Consequently the company trades on a rock-bottom forward price-to-earnings growth (PEG) ratio of 0.2. Any reading below 1 suggests a share is undervalued by the market.
Finally, Trifast also offers UK share investors an added sweetener in the form of its inflation-beating dividend yields. This clocks in at 2.8% for this financial year and leaps to 3.3% for fiscal 2023. All things considered, I think the firm is a very-attractive reopening stock at today’s prices.