Industries and shares that had been hit hardest by Covid were the biggest stock market winners on Monday when markets globally leapt on news of the Pfizer vaccine update. I’m unsure if this is the start of the recovery, but if the stock market keeps rising, then I’m tempted to add to my shares in Legal & General (LSE: LGEN) and add new holdings in Barclays (LSE: BARC) and Intercontinental Hotels (LSE: IHG).
The asset manager closely tied to the UK economy
The former, as a share that’s closely linked to the health of the economy, has been hit by the pandemic and ensuing economic gloom. Like other financial stocks though, it’s excellent value, I feel, and this now gives the share price the chance to bounce back strongly. A P/E of seven indicates the shares are great value.
It was noticeable that growth shares either didn’t rise as strongly or even fell on Monday, despite the stock market gains. Legal & General is certainly more of an income and value share. As such, I think is ideal for long-term compounding and for adding to either a Stocks and Shares ISA or a SIPP.
With a dividend yield over 7% and a share price that is 25% down so far this year. I think Legal & General shares could have an amazing few months ahead.
The stock market hasn’t been kind to bank shares
Last month, I thought Barclays was a better buy than HSBC. If we’re entering a stock market upturn, I’m even more sure now that that’s the case. I think Barclays, with its US investment arm, could be a major beneficiary of M&A activity. This was already picking up to some extent.
The banking sector has had a lot of negative investor sentiment given the fears around bad debts in a recessionary environment. If this fear is replaced with hope for the future, bank shares – and particularly Barclays – could surge, I think. For me, the shares on a P/E of around seven are too cheap to ignore. Especially if the market recovery takes hold.
Perhaps also now with more economic confidence, the case for bank dividends resuming has got a bit stronger. When dividends come back I expect that’ll boost share prices across the sector.
The hotelier with empty rooms
It’s not at all hard to understand why Intercontinental Hotels’ share price took a beating from Covid-19. Especially so in the early stages of the pandemic. But I think it should bounce back very strongly.
In the second quarter, RevPAR – a measure of how full hotels are and room prices – was down 75% on the previous year. By the third quarter, this had improved to be down a little over 50%. Progress was already being made and the group remained profitable.
The group remained profitable because it’s mostly a franchisor. This means franchisees largely shoulder the burden of costs.
Overall, I expect the hotel group to bounce back very strongly if international travel picks up. It also feels a safer bet if the stock market drops, as it’s a less capital-intensive businesses than airlines, for instance. So it’s less likely to see big losses than those businesses in the event of another stock market crash.
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Andy Ross owns shares in Legal & General and HSBC Holdings. The Motley Fool UK has recommended Barclays and InterContinental Hotels Group. 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.