FTSE 100 stocks have sold off again as Covid-19 worries weigh on the market.
Fears of a potential second wave have caused further declines to an already underperforming market.
Given that the first wave caused a lot of macroeconomic destruction, there is concern that a second wave could cause a lot of damage too. Any lockdowns in the UK could cause more economic pain.
While the near-term outlook isn’t good, there could be an opportunity for long-term investors who can tolerate the wild swings.
Several vaccine candidates for Covid-19 are in late-stage trials with Johnson & Johnson recently joining drug makers Moderna, Pfizer, BioNTech, and AstraZeneca in the category of Western pharmaceutical makers with phase 3 candidates.
Given the clinical results released so far, there is optimism that at least one vaccine candidate will be approved.
Although it will take some time to manufacture and distribute in sufficient quantities, a safe and effective Covid-19 vaccine would help with the demand part of any macroeconomic equation.
Given the potential demand recovery, I believe the following three stocks could be great investments:
A leading insurer
Among FTSE 100 stocks that could be in position for a rebound due to a potential vaccine, I believe Prudential (LSE: PRU) is a great play.
If a safe and effective Covid-19 vaccine is sufficiently distributed, economic conditions will return closer to normal. If economic conditions recover, interest rates will likely rise, and Prudential will have an easier time realising a higher yield on its portfolio debt investments. Prudential will presumably also have lower life insurance payouts due to Covid-19 once the pandemic ends.
If Prudential’s fundamentals improve, I think its stock could trade closer to its adjusted book value per share, which is almost 50% higher than current levels.
An asset-light hotel play
Another vaccine rebound play among FTSE 100 stocks could be Intercontinental Hotels (LSE: IHG) in my view.
If a safe and effective Covid-19 vaccine is distributed widely enough, air travel will return closer to normal. If air travel normalises, demand for hotels could return closer to pre-Covid-19 levels as well.
If demand for hotels rises, Intercontinental Hotels’ financial results could improve substantially and the company could reinstate its dividend.
A spirits giant
Yet another potential vaccine rebound play among FTSE 100 stocks could be Diageo (LSE: DGE) in my opinion.
Due to Covid-19, shares of the leading spirits and beer maker have fallen substantially as the company’s organic operating profit shrank 14.4% year-on-year for the fiscal year ended 30 June, 2020.
While shares are well off from their highs, Diageo is nevertheless a high-quality company.
The spirits giant has a number of leading brands and exposure to many emerging markets.
In terms of its dividend history, Diageo has also been very dependable. The company has increased its annual dividend for many consecutive years, and management even raised the annual dividend for fiscal year 2020 by 2% despite the Covid-19 outbreak.
If a safe and effective vaccine is approved, I think Diageo stock could easily rebound as spirits and alcohol demand will likely recover.
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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, InterContinental Hotels Group, and Prudential. 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.