It’s quite possible that the eagerly-anticipated economic recovery in 2021 could fall flat. Covid-19 vaccines are happening and more are coming, but a lumpy rollout might hamper a rebound in corporate profits. There are other things that UK share investors need to be prepared for too, like a Brexit hangover and the possibility of renewed trade wars elsewhere.
The uncertain economic outlook won’t stop me from continuing to buy UK shares in my ISA, however. Even if the broader economy struggles there are sectors that could still deliver big shareholder returns in 2021.
Playing e-commerce with UK shares
Grabbing a slice of e-commerce is a top idea in my opinion. There are several ways that UK share investors like me can play this theme. I’ve invested in logistics and warehousing giants Tritax Big Box and Clipper Logistics. I’ve also bought shares in cardboard packaging colossus DS Smith.
I’m thinking of splashing the cash on fashion retailer ASOS (LSE: ASC) too. The online-only business is going from strength to strength as the impact of Covid-19 on consumer spending habits turbocharges sales. Latest financials this month showed group revenues soared 24% at constant currencies in the four months to December. International sales rocketed 18% while sales in its core UK market grew at twice that pace.
Investing for growth
ASOS is expanding across Europe to capitalise on this fertile environment as well. Earlier this month it announced plans to open a new £90m distribution centre in Staffordshire to service its UK and overseas customers.
ASOS continues to expand its influence outside its traditional sweet spot of fashion too. Notably, the UK share is making significant headway in the gigantic beauty and personal care segment. It has also boosted the number of beloved British brands in its stable by picking the bones of retail casualty Arcadia. It has announced today plans to take over the brands and the stock (but not the stores) of Topshop, Topman, Miss Selfridge and HIIT for a cool £295m.
Expensive but exceptional
There are risks associated with investing in ASOS, of course. It could see sales suffer amid a wider drop in consumer spending power as the twin problems of Covid-19 and Brexit hit the British economy. The clothing segment is also ultra competitive and the business could see its wafer-thin profit margins come under increasing stress as its rivals build their online operations. Operating margins have improved recently. But these still clocked in at just 4.6% for the last fiscal year (to August 2020).
City analysts reckon annual earnings at ASOS will rise 8% in financial 2021. This leaves the UK share trading on a forward price-to-earnings (P/E) ratio of around 37 times. Sure, this may look a tad toppy on paper. But I reckon this reflects the huge investment in infrastructure and its products that ASOS is making to deliver chunky long-term profits. I think the retailer is a great buy for me in February.
Royston Wild owns shares in Clipper Logistics, DS Smith, and Tritax Big Box REIT. The Motley Fool UK has recommended ASOS, Clipper Logistics, DS Smith, and Tritax Big Box REIT. 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.