Choosing which stocks to buy during this economic downturn is no simple task. Most company share prices are yet to recover from the March market crash that was caused by the coronavirus pandemic and subsequent lockdown. In fact, many of them will probably take years to return to pre-crash levels.
Airlines, cruise firms, oil companies and banks appear to be the worst-hit sectors, but many others have been affected too.
Pharmaceuticals and tech companies have fared better. This should not come as a surprise as many investors actively seek solutions to world problems and both pharma and tech offer answers to the challenges created by the pandemic.
Tech savvy stocks to buy
A UK tech company that has enjoyed a share price recovery past pre-lockdown levels is Computacenter (LSE:CCC). A FTSE 250 computer services company that serves both private and public sector businesses throughout Europe. The £2bn company has enjoyed excellent returns this year, surpassing analysts’ expectations.
Computacenter carries a roughly 7% free cash flow yield. It has a price-to-earnings ratio (P/E) of 22 and earnings per share are 90p. At the end of July, it had around £280m in net cash, so although it has paused its dividend, the likelihood the company will reinstate it is positive. It appears to have a well-managed setup throughout its distribution channels ensuring value for shareholders.
Lockdown created a surge of home workers and home schooling, boosting demand for IT services, and I think this will continue. We are going to have to learn to live with the pandemic for the time being and so businesses will continue with an ongoing focus on ensuring staff are tech savvy. Many businesses are embracing home working for the long term, IT security is paramount, and I think Computacenter will continue to deliver value to shareholders. I think this is a good stock to buy.
Digitalisation and healthcare
Power products supplier XP Power (LSE:XPP) is another FTSE 250 stock that has seen its share price surge past pre-pandemic levels. Its share price has enjoyed a good week after reinstating its dividend payout, something income investors are actively seeking. The interim dividend payment will be 18p per share, which is nearly 50% lower than last year, but very welcome nonetheless.
XP Power has a market cap of £847m, its order intake for the first half of the year has improved by 45%, adjusted pre-tax profit rose 2% and revenue increased by 6%. It is well placed to benefit from both digitalisation and increased healthcare spending. This is because XP Power creates controllers for electrical equipment needed in manufacturing products like ventilators, patient monitors, and X-ray machines.
It also has a record backlog of customer orders to process. These mainly relate to orders from its semiconductor equipment manufacturing and healthcare customers. The company has already expanded its capacity in China and Vietnam to fulfil demand.
Although this looks a well-managed company and its share price has enjoyed a fantastic rise. I think it may be set to return to business as usual in the second half of the year. The fact that it offers a dividend is great, but growth may not be so rapid. It has a very high P/E of 40. So I think its share price could see some volatility. I think this would be a good stock to buy in a dip.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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.