Investors still seem to be focusing on ‘reopening’ stocks. These are companies that could benefit from the easing of lockdown restrictions. Here are four I’d buy in my portfolio today.
#1 – Next
Next (LSE:NXT) has fared well during the coronavirus crisis due to its online sales strength. But while e-commerce accounts for over 50% of revenue, it still has a sizeable retail store estate.
I reckon that on the easing of lockdown restrictions, consumers are likely to go out, socialise and spend money they have saved during the pandemic. Next has shops in various locations, including city centres and retail parks, which could benefit from this. It also has a diverse product offering, with new beauty and home specialist stores, and it has just purchased an investment stake in Reiss.
But with a price-to-earnings ratio of 35x, there’s no denying that Next shares are expensive. Although the share price has slipped, it’s trading close to all-time highs. So the stock could be sensitive to further Covid-19 setbacks.
#2 – Diageo
Diageo (LSE: DGE) has a strong and diverse portfolio of beverage brands. Even one of the UK’s highest-profile fund managers, Nick Train, holds Diageo in his Finsbury Growth & Income Trust portfolio. The beverage firm is banking on the ‘premiumisation’ trend, where more and more consumers globally are likely to pay for a higher-quality product.
The pandemic has hit the company’s revenue and profitability. But as pubs and restaurants start to reopen, people are likely to socialise and go out for a drink. I reckon this could give this ‘reopening’ stock a boost.
Diageo isn’t cheap and trades on a price-to-earnings ratio of 27x. Again, the stock is likely to be suffer on any lockdown delays.
#3 – Whitbread
Whitbread (LSE: WTB) owns and operates hotels and restaurants. Its Premier Inn business is one of the leading budget hotel brands in the UK.
Many people could be forced to take ‘staycations’ in the UK this year if international travel remains difficult and vaccinations are delayed in destination countries. Even when lockdown restrictions are eased, holidays abroad are looking increasingly unlikely. Whitbread could benefit from this staycation boom. The family-friendly restaurants and value-for-money hotels put Whitbread in a good position to capitalise on this trend.
Even after the pandemic, the company will continue growing its hotel portfolio internationally. It’s budget offering is already resonating well overseas.
Whitbread’s recovery largely depends on the easing of government restrictions though. Any delays could impact the share price.
#4 – Greggs
Greggs (LSE: GRG) shares have fared reasonably well during the coronavirus crisis. I think what’s helped is the strong brand and product offering. The company is a leading food-on-the-go retailer and has over 2,000 outlets.
It may have recently announced its first-ever loss, but I think the financial results showed how resilient the firm is, especially given the challenging conditions of the pandemic.
Its click-and-collect service, as well the delivery partnership with Just Eat, has helped Greggs weather the Covid storm. But I think that as lockdown restrictions ease, more people are likely to buy the retailer’s pasties and sausage rolls. Even if economic conditions worsen, I feel most consumers could still afford its products.
However, it may take a hit from the working from home trend as fewer office workers per day visit its outlets for breakfast or lunch.
Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Diageo and Just Eat Takeaway.com N.V. 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.