As you probably know, tomorrow marks ‘Freedom Day’ — the lifting of all Covid-19 restrictions in England. Despite concerns over rebounding Covid-19 infection levels and rising hospital admissions, Boris Johnson has maintained that this step will be irreversible. With this in mind, here are what I consider to be three of the best stocks I could buy when the market opens on Monday.
Quality… at a price
No more table service. No more sitting outside (unless you want to!). The full re-opening of bars, pubs and nightclubs should play into the hands of FTSE 100 drinks giants Diageo (LSE: DGE). As such, I’d be happy to buy its shares on Monday.
For me however, Diageo’s appeal goes beyond the Covid recovery. I think it’s a great defensive stock to hold at the heart of a portfolio.
While trading will never be completely consistent year-to-year, its portfolio of premium brands and clout within the sector makes earnings (and dividend hikes) far more predictable than at other companies. High returns on capital and pricing power also make this a good hedge against inflation, in my opinion.
Sure, the valuation — a P/E of 27, as I type — is punchy. There’s a risk investors will prioritise value stocks in the months ahead, meaning some recent share price gains may be given up.
As a long-term investor, that wouldn’t bother me. As blue-chip companies go, I reckon Diageo is one of the best stocks to buy.
Summer holiday winner
Another stock that should benefit from the lifting of restrictions is Hollywood Bowl (LSE: BOWL). This might seem an odd choice as sites have been open for some time now. BOWL’s shares have also climbed 65% in value since this time last year.
However, I suspect the firm could benefit even more from the ongoing controversy and confusion surrounding overseas travel. Right now, booking a holiday abroad feels risky in both a health-related and financial sense.
Having probably exhausted streaming services over the multiple lockdowns, parents will also be looking for relatively cheap ways to entertain children over the school holidays. Step forward Hollywood Bowl.
Based on the numbers available to me, BOWL trades on a fairly attractive 17 times predicted FY22 earnings. Sure, nothing is nailed on and the company certainly carries more debt than it used to. Nevertheless, the above points and the ordinarily decent profit margins make the stock a ‘buy’ for me.
Time to dine
A final stock I’d consider buying on Freedom Day — and one I already own — is small-cap Churchill China (LSE: CHH). Like Diageo, the tabletop manufacturer could/should see another rebound in trading as more people feel confident to return to restaurants and attend events.
This month’s update was encouraging. Revenue in both May and June was back at 2019 levels. News that an interim dividend will be paid also suggests management is confident in the outlook.
Having also increased by 65% in 12 months, Churchill’s share price now looks up to date with events. Moreover, the company’s small-cap status means the valuation could prove more volatile than your typical blue-chip if Covid takes hold again. As a result, I’m not sure I’d throw excessive amounts of cash at the firm now.
Notwithstanding this, I’d consider a small top-up, bearing in mind the company’s order book may receive another boost as vaccination programmes overseas pick up speed.
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Paul Summers owns shares in Churchill China. The Motley Fool UK has recommended Churchill China, Diageo, and Hollywood Bowl. 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.