The end of the pandemic appears near. This means that UK stock investing could change as companies’ prospects alter. In fact, it already is changing.
Stocks popular during the Covid-19-driven lockdowns have fallen out of favour with investors as animal spirits return to the stock markets. Bullish investors have been chasing up share prices of beaten down UK stocks.
I think it is entirely possible that the share prices of aviation, travel, and tourism stocks, for instance, will continue to rally. At the same time, otherwise safer stocks will continue to show sideways movements at best.
Why I’d buy UK stocks with falling prices
I think this is an opportunity to buy these out-of-favour stocks. There are two reasons for this:
#1. Circling back: It is only a matter of time, in my view, before some of the other stocks start looking expensive. This is especially so since they will take time to recover their financial health. Think of the likes of easyJet and Cineworld.
By comparison, defensives and Covid-19 gainers will look a lot less pricey. This is visible already. The FTSE 100 consumer goods biggie, Unilever has an earnings ratio of only 15 times today. Its share price as I write, is less than it was last year at this time.
#2. Long-term value: Over time many of these shares have the ability to generate solid capital gains for investors even with such ups and downs. Consider the energy provider, National Grid, a multinational with near secure demand. It has not had a fun ride at the stock markets since the market rally started in November. I reckon this can change over time, especially as this UK stock resolves its own issues.
My two contrarian picks
I’d consider buying either Unilever or National Grid at any point. But here, I would like to draw attention to two UK stocks that deserve a special mention, in my view.
#1. Fresnillo: The precious metals miner delivered a stellar set of results today. Its pre-tax profit for 2020 is actually up a whole 208%. It also increased dividends. But its share price is down. This continues its declining trend since November.
It is true that hedges like gold and silver may truly be out of fashion for a while as the economy inches back to normal. But I think that is exactly the time to start considering buying these UK stocks – when these metals are out of favour. And then I would hold them for the long term.
#2. Bunzl: The surprise gainer from Covid-19 finds itself in a similar boat to Fresnillo. The UK stock also released its strong set of results yesterday. Its revenues increased by almost 10% and pre-tax profits are up 23% in 2020. But its share price is not going anywhere either.
This is despite the fact that it has a robust outlook for 2021. Moreover, it also affirms positive long-term prospects. That is far more than some of the coronavirus stocks can say.
