In the wake of this year’s Covid-19-related economic crisis and stock market crash, there’s been a lot of debate about what kind of recovery we’ll see.
Originally, many economists thought we’d see a ‘V-shaped’ recovery, with economic activity bouncing straight back. Then, we started hearing more about ‘W-shaped’ recovery. This is where an economy falls into a recession, recovers, falls into a recession again, and then finally recovers properly.
Personally, I think there’s a good chance we could actually see a ‘K-shaped’ recovery. Here, I’ll explain what a K-shaped economic recovery is and highlight some shares I’ve bought to prepare my investment portfolio for this type of recovery.
With a K-shaped recovery, some areas of the economy recover and get stronger, while other areas slide and get weaker. In other words, a rising tide doesn’t lift all boats equally.
Looking at how Covid-19 has affected the world this year and how lockdowns have impacted our behaviour, I think a K-shaped recovery is highly likely.
Some sectors are likely to be clear winners from Covid-19. For example, technology companies are likely to benefit from more people working and shopping from home. Businesses involved in e-commerce, digital payments, cybersecurity, and work-from-home technology solutions are generally thriving right now.
At the same time, there are clear losers from the pandemic. Travel, hospitality, and commercial real estate are good examples of sectors that face a lot of uncertainty right now. Many companies in these sectors may not recover.
Ultimately, I expect some stocks to outperform significantly post-Covid-19, and some to underperform dramatically. As such, I think it’s worth being highly selective about your investment choices going forward.
The shares I’ve bought
So, what shares have I bought to prepare for a K-shaped recovery? Well, one stock I recently bought more of is FTSE 250 technology company Softcat. It helps companies with their technology infrastructure, offering solutions for networking, cloud migration, data analytics, collaboration, and cybersecurity. I think it’s well-placed to benefit from the tech revolution we’re experiencing and should see strong growth in the years ahead.
I also added more shares in Reckitt Benckiser to my portfolio recently. This FTSE 100 company owns a number of trusted cleaning brands such as Dettol and Lysol. I think it should benefit from the increased focus on hygiene we’re seeing.
Additionally, I’ve been adding some US shares to my portfolio in preparation for a K-shaped recovery. I’ve been building up a position in Mastercard, as I expect it to benefit from the increased use of credit cards in a post-Covid-19 world.
And I’ve also bought shares in a few smaller US companies such as Upwork, which operates a freelance employment platform (and saw revenue growth of 19% last quarter), and Teladoc Health, a leading telemedicine (virtual health) company.
If we do see a K-shaped recovery, I think these kinds of stocks should help me outperform the wider market.
Edward Sheldon owns shares in Softcat, Reckitt Benckiser, Mastercard, Upwork and Teladoc Health. The Motley Fool UK owns shares of and has recommended Mastercard. The Motley Fool UK has recommended Softcat. 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.