The jury remains out on what kind of economic recovery we should expect. Timing can be an important part of stock investing, so it’s an issue that you need to consider to maximise your chance to retire rich.
The pessimists out there reckon an ‘L-shaped’ pattern can be expected. They expect that following the sharp decline caused by Covid-19, we’ll see a prolonged period of flat economic growth.
A ‘U-shaped’ recovery is predicted by others, is isn’t a whole lot better. In this scenario, the economy will drag along the bottom for a time before a gradual improvement. The most optimistic individuals reckon that a ‘V-shaped’ recovery is in store. This involves as sharp improvement in economic conditions to match the sharp downturn.
A ‘V-shaped’ future?
There are certainly plenty of economists who believe that an instant economic recovery can be expected. The boffins at Morgan Stanley fall into this category.
In the bank’s Mid Year Outlook they comment that “The combination of the steepest recession with the largest coordinated monetary and fiscal stimulus in history almost guarantees that there will be a ‘V-shaped’ recovery from the exceptionally deep trough”.
Morgan Stanley also says that “the reopening of the economy will happen faster than expected and without a major spike in new cases”. It adds that even in the event of a fresh wave of infections, investors shouldn’t expect another strict lockdown due to the huge economic cost.
To the early cycle stocks!
Clearly the debate will rage on as to what kind of economic recovery we can expect. But let’s say that the optimists over at Morgan Stanley are correct. What are the best UK shares to buy in the event of a sharp rebound?
Well you can expect demand for automobiles to pick up as consumer spending power and confidence improves. It means that auto retailers like Pendragon and Lookers could witness a handsome profits boost. Trade at online car listings website Auto Trader might also pick up.
Manufacturers of auto parts like FTSE 100 catalytic converter builder Johnson Matthey would also benefit from improving car sales. Of course, demand for other less-expensive consumer and leisure goods would also tick higher in the event of improving economic conditions. This would boosting everything from model train manufacturer Hornby and music equipment maker Gear4music to household goods giants like Unilever.
Invest to retire rich
Companies that rely heavily on advertising spending are also great buys at the early stage of the cycle. FTSE 100 media colossus WPP could see revenues accelerate in the coming quarters. Other beneficiaries would also likely include broadcasting giant ITV, newspaper group Reach, and magazine publisher Future.
As I say, investors need to keep their ear to the ground to find out what kind of recovery is in store and then to buy their stocks accordingly. Those companies I mention above are just a handful of early cycle shares that could fly in the near future. But whatever stage of the economic cycle we find ourselves at, from sharp recovery to prolonged recession, there is an abundance of UK shares that could help you to retire rich.
Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Auto Trader, ITV, and Pendragon. 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.