‘Coronavirus shares’ are issued by companies facing increased demand due to Covid-19.
It’s worth asking if these coronavirus shares are a bubble or an opportunity? To figure this out, we have to consider a few factors. First of all, what sectors do these companies operate in?
Let’s start with medical firms. They have been really popular among investors since the beginning of the pandemic, which has very sadly affected so many people. I am sure all of us have seen plenty of headlines about the need for a Covid-19 vaccine. The largest UK firm working on one is AstraZeneca. However, this is not just about a vaccine. How about coronavirus tests? One of the companies producing them is Novacyt. It’s quite a small company but its stock has surged to new highs because of soaring sales.
But don’t just think of medicine. As we all know, high tech shares have surged all over the world due to most people’s self-isolation. Some of the most popular FTSE 100 shares are Ocado and Just Eat. Both of these firms deliver food, which is a really popular service nowadays. Some experts believe that the pandemic made many people change their habits forever. That is, they will still keep ordering meals for the sake of convenience.
Coronavirus shares – an opportunity?
I’d argue that the coronavirus pandemic is far from over. Some analysts argue that there won’t be a major second lockdown simply because many countries cannot afford it. However, if Covid-19 gets completely out of control, governments might be forced to enact stricter measures. This is more likely to happen if an effective vaccine doesn’t get invented until 2021. It would indeed be a catastrophe for the global economy. At the same time, it will give quite a boost to coronavirus shares.
In my view, this scenario is quite probable but I wouldn’t rely on it too much. After all, many coronavirus stocks trade at really high multipliers. So, it seems to me that the stock market is already pricing in the possibility of a second lockdown.
I know it sounds obvious but all depends on a particular company’s fundamentals. Never forget that ‘all passes and this too shall pass’. The current situation will pass sooner or later. So, if a stock shines just because of the pandemic, it’s not worth your money.
How would I pick coronavirus shares?
I’d focus on the following criteria when choosing coronavirus stocks. First, it’s essential to only choose profitable companies. I don’t just mean companies that only managed to make a profit once. They should ideally have a long history of rising profits. Then, these companies should also pay dividends and raise them year after year. Last but not least, ‘good’ firms should also have clean balance sheets. How do you know if the company has a sound balance sheet? Well, without checking too many things, you can look at the company’s credit ratings. These are issued by S&P Global, Moody’s, and Fitch. Good companies have a rating of A and above. These agencies also give reasons for assigning a particular rating, and I think it’s essential to read these explanations.
And yes, there are Footsie companies that fulfil these requirements.
Anna Sokolidou has no position in any of the companies mentioned in this article. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. 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.