Forget the coronavirus — we at The Motley Fool UK firmly believe those buying the best UK stocks now and holding them for years (ideally decades) stand a great chance of becoming wealthy. The snag, of course, is having the skill to distinguish those that will make money from those that won’t.
Then again, there are some sectors that simply scream ‘avoid‘ to me right now. Here are three that are unlikely to make you rich any time soon.
One set of businesses that I think will struggle more than most to recover will be gyms and fitness studios.
If reports from the US are anything to go by, many people do not intend to renew their memberships post-lockdown. It would seem a lot have simply become accustomed to working out in the park or at home. Either that or they’ve recognised the futility of shelling out money on a regular basis for something they don’t use all that often. With job insecurity rising sharply as firms adapt to the ‘new normal’, gym memberships are also a luxury most of us would be willing to forgo.
Of course, there will still be people who head back to their local gym, particularly those who miss the social and motivational aspects of a visit. Others will likely want to return in the winter months when the cold weather sets in. Then again, the possibility of a second wave coinciding with seasonal flu will surely make even the most dedicated gym bunny think twice.
It may benefit from reduced competition if other operators go bust but I’d continue to give Gym Group — one option on the UK market — a wide berth for now.
High street fallout
Many retailers were already finding things tough before the coronavirus arrived on these shores. The lockdown and stuttering recovery in sales seen since could prove the final nails in many coffins.
Certain UK stocks should be absolutely fine, of course. Supermarket titans Tesco, Sainsbury’s and Morrisons for example. A business specialising in low-ticket staples, like B&M European Value, should also thrive in troubled times.
If you’re going to buy a retailer that sells more discretionary goods, however, I’d avoid anything that doesn’t already have a strong online presence and bulletproof finances. And even if they do have these, it’s important to ask whether they can be more resilient than their peers given the hyper-competitive markets in which they operate.
As such, I’d avoid stocks like Dixons Carphone and yes, even stalwart Marks and Spencer.
I don’t doubt that some airlines will adapt and recover from the coronavirus. Picking a winner at this stage, however, feels like a gamble. After all, the coronavirus story changes every day. This leads to huge volatility in stocks such as easyJet, Ryanair and IAG as investors struggle to accurately value them.
There’s also the opportunity cost to consider. Why put your money to work in an industry that might not recover for 2-3 years? And can you stand the bumpy ride in the meantime?
Investing is all about generating the best return from the amount of risk you’re prepared to take. The right airline stock could make you wealthy in time but I think this part of the market is only for the brave or recklessly bold right now.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value, Tesco, and The Gym 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.