The economic outlook remains packed with danger as the public health emergency rolls on. But that hasn’t stopped demand for UK ‘reopening’ shares from steadily improving. I’m scanning the market for top stocks to buy as the economy reopens. Should I buy these two British stocks for my ISA today?
Riding the employment rebound
I think buying UK recruitment shares could be a good way to play the economic recovery. There’s been a string of positive trading updates coming out of the sector in recent weeks. And the strong market conditions of recent months remain very much alive, at least if latest industry data is to be believed.
According to recruiter Morgan McKinley, there was a 70% quarter-on-quarter increase in job vacancies in the City of London in March.
One UK recruiter on my shares radar today is Hays (LSE: HAS). City analysts think annual earnings here will rebound 133% in the financial year to June 2022. This compares to the 50% drop forecast for the outgoing fiscal period.
And it’s a bright reading that leaves this UK reopening share trading on a forward price-to-earnings growth (PEG) ratio of just 0.2. This is well below the benchmark of 1, which suggests a stock that might be undervalued by the market.
A word of warning, however. Successful Covid-19 vaccine rollouts bode well for Hays and its UK and US marketplaces, but the fresh wave of infections rolling across Europe could well scupper any predicted profits rebound later in the year.
Another great UK property share?
At first glance, Derwent London (LSE: DLN) might also appear to be an attractive reopening stock to buy right now. Sure, it trades on a high forward price-to-earnings (P/E) ratio of around 36 times today. But City analysts think the office space provider might be on the road to solid and sustained earnings growth as workers in the UK return to cities en masse. Current forecasts suggest bottom-line rises of 6% and 10% in 2021 and 2022 respectively.
The capital’s historical role as a trading hub means Derwent London could well continue to enjoy strong demand for its properties. Indeed, latest research from estate agency Knight Frank and think tank New London Architecture showed an 11% year-on-year increase in 2020 planning permissions for high-rise buildings in the capital.
This data suggests developers are expecting demand for office space in London to remain strong over the long term. However, I’m yet to be convinced.
Signs of a Brexit-related corporate exodus to European cities is one reason I fear for property companies like Derwent London. Also, there are indications that companies both large and small are going to embrace flexible working practices more fervently in a post-pandemic landscape. And that could have huge ramifications for UK property shares like this in the long term.
For this reason, I’d much rather buy other UK reopening shares today.
