All UK active investors want to beat the FTSE 100. Otherwise, you might as well stick your money in a tracker. With that in mind, these are the UK shares I think could be boosted most by further news on Covid-19 vaccines and that therefore have the strongest recovery potential and could as a result outperform the FTSE 100 index.
A UK share that might break up and release value?
Aviva (LSE: AV) shares are down 25% so far this year. The shares now trade on a price-to-earnings ratio of just 5. To me that gives it a lot of potential to bounce back. There are also rumours the group could be acquired or broken up to release value for shareholders.
I wouldn’t invest purely on the possibility of a breakup or a premium being paid to acquire Aviva. That’s a gamble. For me, it’s just an added bonus if it happens and it has an above-average probability given the insurance sector has other M&A activity going on. Instead, I’ll likely invest because the fundamentals (profitable, cheap, high yielding) look good. The shares should recover over the coming 12 months – if the economy recovers.
The insurer has a new CEO in Amanda Blanc who is looking to cut debt and make the group leaner. Done well, this could unlock value and it could also excite shareholders and move the share price higher. All in all I think Aviva is a UK share with potential.
Changed its name but has it changed its spots?
I’ve been positive about the UK shares of other banks. I’ve always been warier of Natwest Group (LSE: NWG), formerly Royal Bank of Scotland. However, given how cheap the shares are now, the fact it also has a relatively new CEO and it has the potential to reintroduce dividends – perhaps in the first quarter of 2021 – I think there’s scope to be optimistic about the shares.
The share price has some momentum now because of the Covid-19 vaccine news and the subsequent hopes the economy might improve. It’s a development that’s obviously good for banks given their close ties with the health of the economy. Natwest already – like other UK banks – has reduced provisions for bad debt. If the economy improves, investors can expect that to continue.
I think there’s more than momentum though to boost the shares going forwards. The combination of being cheap (it has a price-to-book value of around 0.3) with room to improve its financial position, give me reasons to think Natwest might be a good investment.
I think both Aviva and Natwest Group have the potential to be among the UK shares that bounce back furthest from here. They’ve been hit hard by Covid-19 and weren’t firing on all cylinders before the pandemic but there are reasons to think the future might be brighter. I’ll be keeping an eye on them.
