Recently, reports of an October circuit-breaker lockdown have been doing the rounds. Going by the recent increases in coronavirus cases, this is hardly surprising, even though the government has denied any such plans. Even if these are just rumours, as an investor, I would like to prepare for the possibility anyway. This is especially so, because the FTSE 100 index has been weak recently.
It has fallen for the last three trading sessions. There are other reasons why this has happened, but I think an impending lockdown cannot be ruled out as a key factor. Scary as this may sound, it need not be so. Previous lockdowns have shown me hidden opportunities in such difficult times.
Looking at past gainers
In preparation for such an event, the first set of stocks I am considering buying includes those that can actually gain from it. Online delivery companies like Ocado, Just Eat Takeaway and Deliveroo are three such examples. E-grocer Ocado was last year’s best performing stock, but has performed miserably by comparison in 2021 so far. A similar trend is evident for food delivery provider Just Eat Takeaway. And Deliveroo has shown a smart recovery from its disastrous debut on the stock market earlier this year.
In any case, I think these companies have huge long-term potential based on the prospects for the e-commerce industry overtime. And they are expected to gain in a lockdown. This could stabilise my portfolio in the short term, even if other cyclical stocks crash. Yet they are performing poorly at present, which means that they are available at a discount. I am already an investor in Ocado and Deliveroo, and am considering more stocks from the e-commerce ecosystem in my portfolio now.
Buying FTSE 100 cyclicals
Next, if a lockdown is announced, I reckon the biggest casualties will be cyclical stocks. Think of commodities, retailers, financials, entertainment and travel stocks as examples. Of these, I like commodity stocks like industrial metal miners and oil stocks the most right now. The reason is that they are in good financial health and pay great dividends too. In other words, they are both good potential growth and income stocks. And clearly, with such attributes, their prices have risen a lot in the past year or so. Stocks like Anglo American, Evraz, Glencore and Rio Tinto fall in this category.
Retailers are another category of stocks I’d consider. Burberry, JD Sports Fashion and Next are examples. These stocks have shown a relatively quick bounce-back. And investors who bought them at their lows last year have been richly rewarded.
Being careful about the most affected stocks
I would, however, be careful before buying either entertainment or travel stocks in a lockdown. Their financials have been impacted by the pandemic and with some precautions still necessary, they have not been able to come back fast either. All stocks carry risks, including those that I like. But I am not sure how fast entertainment or travel stocks will be able to recover if the pandemic becomes an issue again.
Manika Premsingh owns shares of Anglo American, Burberry, Deliveroo Holdings Plc, Evraz, Glencore, JD Sports Fashion, Ocado Group and Rio Tinto. The Motley Fool UK owns shares of and has recommended Next. The Motley Fool UK has recommended Burberry, Just Eat Takeaway.com N.V., and Ocado 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.