The coronavirus pandemic has impacted stocks in wildly differing ways. Of course, with the FTSE All-Share index down over 20% since the start of the year, the impact has been severely negative for many stocks.
However, a perhaps surprising number are showing good gains for the year. This, in spite of – or, in some cases, because of – the Covid-19 pandemic. Here, I want to tell you about three coronavirus stocks I’d buy today, and some I’d avoid.
The world’s big pharma companies are working to develop vaccines for Covid-19. They’re hopeful of success. GlaxoSmithKline CEO Emma Walmsley said yesterday she’s optimistic the industry will be able to make an immunisation against Covid-19. And that it’ll be widely available next year.
In the meantime, we’re making progress on treatments that alleviate the impact of the coronavirus. And more will surely be developed. It seems likely we’ll be in a much better place in 2021 than we’ve been in this year.
Big pharma firms like GlaxoSmithKline could make money from vaccines. But for these multi-billion-pound giants it would be just one of many revenue streams. In other words, Covid-19 isn’t the be-all and end-all for them.
Coronavirus stocks I’d avoid
For small companies, a Covid-19 ‘breakthrough’ could have a big impact. I’ve lost track of the number of UK small-caps that have announced they’re working on some Covid-19-related product or service. Traders and speculators seem to have jumped on such announcements, pushing these companies’ shares up to often crazy valuations.
I’d be inclined to avoid any loss-making small-cap that’s garnered investor interest purely on the back of a tilt at a Covid-19 product or service. I suspect most such companies will fall back into obscurity and their share prices to pre-pandemic levels.
In short, I think investors are on dangerous ground backing profitless small-caps that have made speculative – or in some cases fairly spurious – moves to profit from Covid-19.
Coronavirus stocks I’d buy
I’m much more interested in businesses that should benefit from changes in society that the coronavirus is producing or accelerating. I’m referring to things like online shopping and working from home.
Supermarket giant Tesco boldly doubled its online capacity in the first weeks of the pandemic. This took its market share of UK online grocery sales to 33.5%. Before the pandemic, I’d been impressed by the company’s turnaround and fight-back against discounters like Aldi and Lidl. These bricks-and-mortar discounters now have a lot of ground to make up online, as they acknowledge customer habits are changing. I rate Tesco a ‘buy’.
I’d also happily buy shares of Gamma Communications. It’s a leading supplier of unified communications services to the SME, public sector, and enterprise markets. It enables instant messaging, video calling, multi-party conferencing, and all sorts of other stuff. It’s set to benefit from a likely far larger number of people working from home, or partly from home, than before the pandemic.
Finally, I was keen on gold miners last year, due to the rising level of global debt. Due to the pandemic, money printing and debt have absolutely exploded. In my view, the debasing of paper currencies means we’ll see increasing demand for gold. As such, I think FTSE 100 gold miner Polymetal International is a good stock to buy to benefit from the financial fallout of Covid-19.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Tesco. 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.