It may have been a poor past year for the economy, but if all goes well, we can soon move past it. The UK economy has opened up to a great extent and the last bit of the lockdown will hopefully be eased next month.
This is evident in not just rising share prices of recovery stocks, but also business gains seen recently. Here are three recovery stocks I’d buy now.
#1. National Express: recovery stock with potential
Travel has been a big casualty of the pandemic, and continues to be so even now. But I think because of this, travel companies’ share price recovery so far is incomplete. In a stock market that has started looking pricey, stocks like those of the FTSE 250 coach operator National Express are attractive to me now.
In its recent trading update, it said that its April revenues are up 50% over the last year. This is a positive initial sign, which makes me hopeful that its share price can rise significantly as more performance updates come in.
#2. Cineworld: can gain from UK economy growth
Cinema chain Cineworld is another FTSE 250 stock that has recovered only to a limited extent. But cinemas opened in the US in April and in May in the UK, which should begin to improve business for the multinational company. I think Cineworld can recover fast because consumers have long been deprived of this entertainment option. Being relatively inexpensive also goes in its favour as consumers could be cost conscious after the hit to the economy in the past year.
#3. Burberry: positive outlook
Both National Express and Cineworld could be impacted by rising inflation, however. Their financials are already vulnerable and rising costs could eat into their profits. However, I think a luxury brand and retailer Burberry is more likely to be insulated from price increases. It has enough pricing power to pass on some cost increases to its consumers.
In its latest results for the year ending March 2021, the company has seen weakness because of the pandemic. But in the last quarter, its same-store sales increased by 32%. It also has a positive outlook for the current financial year. Of the three recovery stocks considered here, Burberry’s share price has recovered most. It is now closer to all-time-highs than market crash lows. Still, I think there is long-term potential in the stock, going by its bounce back and high growth prospects for the economy.
Risks and takeaway
That said, inflation is not the only risk to recovery stocks. New coronavirus variants have led to fresh travel bans. While progress in vaccinations can reduce the impact of the pandemic, the point is that it is still around. And a delayed recovery will continue to bleed vulnerable stocks.
The risks considered, however, I still think there is much room for optimism. I like these recovery stocks for my portfolio.
