3 stocks that might gain from another lockdown

Chatter about another lockdown is picking up again. Whether it happens or not, these stocks should be winners thinks Andy Ross.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

It’s hard to escape increased chatter about yet another lockdown. So what could it mean for stocks? Based on what happened last time, I’d suggest gaming, tech and health as industries that could be well positioned to benefit from any increase in uncertainty and these are the three companies I think could outperform. 

Growth industry

When it comes to gaming, one of my favourite shares is Team17 (LSE: TM17), which I bought during 2020 but have sold and no longer hold. The shares, while expensive relative to many other industries, have faltered in recent months so are better value than they have been in the past. Team17’s price-to-earnings ratio (P/E) is well below that of Sumo Group and even below that of Frontier Developments. So in an expensive sector, its share seem good value to me.

It’s founder-led and the CEO has around 22% of the shares, so Team17 management has every incentive to run the group well and in the interests of shareholders. Aligned incentives between management and private investors are things I like to see, as do investors like Lord Lee, the first ISA millionaire.

When it comes to downsides the stock pays no dividend, so growth has to come just from the share price performance. That has been underwhelming in recent months. The high P/E also means anything less than stellar growth is likely to be punished. I might wait for the shares to fall further before buying again.

Antibody testing

The healthcare group EKF Diagnostics (LSE: EKF) is another stock I expect could benefit from even just increased talk of another lockdown. Part of its business is involved in antibody tests, which have been used in the fight against the pandemic. There’s an immediate catalyst for growth.

Beyond that though, based on the fundamentals, there’s a lot to like. Revenue and operating profit are growing year-on-year and at a strong rate. For example, the latter grew from £5.78m in 2019 to £16.9m in 2020. The business has high margins and returns on capital invested – indicating that it has pricing power and should be able to do well longer term.

If there’s a situation where Covid recedes significantly then the share price might take a temporary knock given that EKF Diagnostics is associated with antibody testing and Covid specifically. Yet despite that, I think the stock has long-term potential based on its growth, margins and high returns on capital, so I may buy the shares.

One of the best growth stocks

Tech was another winner under previous lockdown conditions, which only served to accelerate the trends towards digitalisation that was already under way. I feel one of the best stocks for tapping into this long-term trend is Kainos (LSE: KNOS). Over five years, its shares have just about 10-bagged. That rapid share price growth indicates that Kainos is an impressive company but that it’s no ‘hidden gem’.

Again, because the P/E is very high, the company needs very good operating performance and strong earnings growth. Yet the company taps into some trends that will last for years, if not decades, to come and so I’d be confident buying the shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Frontier Developments and Kainos. 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.

More on Investing Articles

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Growth Shares

This FTSE 250 stock has beaten the index by around 10x over the last year

Jon Smith rates a FTSE 250 stock that has smashed the broader index performance and could keep going based on…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »