The pandemic wreaked havoc on businesses throughout 2020, and some have fared better than others. When looking to invest in quality companies for my Stocks and Shares ISA, I like to start with stocks in the FTSE 100 index.
Buying and selling
Automotive classified ads business Auto Trader (LSE:AUTO) has become a digital vehicle sales behemoth. Over the years, it has invested in technology to ensure it’s easy to use for both buyers and sellers. And it has built its reputation into a reliable and recognisable brand.
Auto Trader makes a considerable chunk of its income from car dealers that advertise through the platform. Therefore, the widespread closure of showrooms in 2020 due to the pandemic, led to a loss of income for the group.
Nevertheless, the company took pains to support its customers throughout the period. It allowed listings to continue for free to maintain good customer relations and ensure a smooth transition to selling online when the lockdowns ended.
But this means a £5m-£7m operating loss for each month the company provides free listings to these core customers. Therefore, sales volumes are expected to slip in Q1 as the latest lockdown continues to affect revenues.
Signs of market stability
However, during the past year, heightened worries of the risk of the virus from public transport led to an increase in consumers seeking private vehicle ownership. Auto Trader has seen a consistent increase in demand for cars and a rise in audience numbers browsing its platform.
According to a Motor Trader article, March 2021 pricing strategies are consistent with those of a typical March, which highlights market stability given the restrictions in place.
Auto Trader has a price-to-earnings ratio of 26 and earnings per share are 22p.
I think it’s a strong company, putting customers first. I’d like to own shares in this business, but I think optimism has driven the share price higher and with a slump in results expected, I’m wary of buying now. Therefore, I’ll put it on my watch list and wait for a dip.
A FTSE 100 5G stock
The UK government sold off a new tranche of 5G mobile network spectrum rights last month, and Vodafone (LSE:VOD) spent £176.4m on its share of the allocation. This is less than its competitors, Telefonica, BT, and Hutchison 3G. The next stage of this process is to divvy up assignments into frequency positions.
Floating its Vantage Towers business on the Frankfurt Stock Exchange led it to generate around €2.3bn, which it’s pledged to use to pay down debt. I think this should also bring future value if the network of 82,000 towers across 10 countries is successful in its bid to become one of Europe’s leading 5G super-hosts.
Vodafone stock has risen 22% in the past six months. But has seen volatility during this time.
Unfortunately, the company is still laden with considerable debt, which poses a long-term risk to the business. It’s also seen its revenues decline over the past five years, which is never an encouraging sign. And its share price is down over 40% in this time. However, it currently offers a nice 6% dividend yield, which is appealing to long-term investors. I think the future potential looks good for 5G providers, and I’m tempted by Vodafone shares.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader. 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.