Not all shares have done badly in the recent stock market crash. Take small-cap Novacyt (LSE: NCYT), which describes itself as a “rapidly growing” international diagnostics company.
It generates revenue by selling diagnostic and pathogen testing kits based on molecular and protein testing technologies. The firm serves the human clinical, life science, food, and industrial markets.
Right place, right time
At the beginning of 2020, the share price stood close to 14p. Today, as I write, the stock changes hands near 394p. Essentially, the progress has been driven by the launch and rapid uptake around the world of the firm’s novel coronavirus test.
If you had £1,000 in the share at the beginning of the year – perhaps as a small part of a diversified portfolio – you’d now have an investment worth about £28,000. However, I wouldn’t invest in the stock today. In an update on 29 April, chief executive Graham Mullis said: “This exceptional demand for our Covid-19 test could continue for some months.”
Indeed, the demand will fall away at some point. Perhaps when we see a vaccine for Covid-19. Meanwhile, the forward-looking earnings multiple for 2020 runs just above 32, which looks pricey.
Novacyt has done well for its shareholders on the back of its coronavirus test. But I’d be looking to run to where the ball is going next, not remaining where it is now. So, if I had profits from an investment in the company’s shares, I’d probably take them now.
Opportunities now in the London stock market
And there are plenty of opportunities in the London stock market. But I reckon the pandemic will change the shape of the economy for the future. Some sectors, and the companies within them, will struggle. Many firms will likely fail.
Trading will be difficult and costly for many companies because they’ll need to apply physical-distancing measures for customers and employees. In many cases, revenue will fall. In shops, for example, fewer customers will be allowed in stores. We’re already seeing that effect, of course, but it’s clear that such steps will continue. One thing seems certain, higher costs and lower revenues will add up to lower profits.
Therefore, I’d be cautious about buying the shares of companies in fallen industries in the hope of a recovery. In many cases, businesses and stocks look set for modest turnarounds, and my guess is that many sectors will fail to recover to previous highs. At least until the virus is put to bed with a vaccine.
Instead, I’d look for companies and sectors trading well now. I’m seeing many decent-looking opportunities in industries such as healthcare, IT, software, betting and gaming, for example. To me, good trading now implies the potential for advancement in the months and years ahead, even in a world dealing with Covid-19.
One thing I’m sure about more than anything right now. Stock-picking is king.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.