With Covid-19 vaccines rolling out rapidly, many investors are now focusing on ‘reopening’ stocks. Owning a selection of reopening stocks is a great idea, in my view.
That said, I think it’s crucial to be selective when investing in reopening plays. Some of these stocks, such as hotel chains, have already had huge runs which means the good news could be priced in already. Others, such as airlines, look financially vulnerable.
Here, I’m going to highlight three reopening stocks I’d be happy to buy for my own portfolio today. These should benefit as economic activity picks up. However, they also have long-term growth potential.
Should you invest £1,000 in Diageo right now?
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Visa
One stock that strikes me as a great reopening play is Visa (NYSE: V). It operates the world’s largest payments network. For every $1 spent by consumers in physical locations, $0.15 goes through Visa’s network.
During the pandemic, Visa’s revenues declined as less transactions took place. This year and next year should be very different however. As the world reopens, transactions are likely to surge. It’s worth noting that around 20% of Visa’s revenue comes from international transactions. So, the company should benefit as international travel eventually picks up.
In the long term, the future looks bright for Visa. According to Accenture, 2.7trn transactions are set to move from cash to cards and e-payments by 2030.
But Visa is an expensive stock. Its forward-looking P/E ratio is about 40 and this only adds risk to the investment case. All things considered however, I think the stock has a lot of appeal.
Alphabet
Another stock that strikes me as a good reopening play is Alphabet (NASDAQ: GOOG). It owns Google and YouTube and is the largest digital advertising company in the world.
As the world returns to normal and economic activity picks up, businesses are likely to increase their advertising budgets. This should benefit Alphabet. Travel advertising, in particular, could drive Alphabet’s top-line much higher, in my view.
But Alphabet isn’t just a reopening play. This stock appears to have strong long-term growth potential. Between now and 2025, the online advertising market is set to more than double in size and this growth should provide strong tailwinds for the company.
However, one risk here is that regulators are targeting big tech firms like Alphabet. This adds some uncertainty to the investment case. Overall, however, I think the risk/reward proposition is attractive. The stock’s P/E ratio of 30 seems reasonable to me, given the long-term growth potential.
Coca-Cola HBC
Finally, I also think Coca-Cola HBC (LSE: CCH) is worth a look as a reopening stock. It’s a strategic partner of the Coca-Cola Company that bottles and distributes its products in 28 countries.
Revenues here took a big hit in 2020 due to Covid-19 lockdowns. With restaurants and bars closed, travel halted, and live sport played behind closed doors, sales plummeted 12.7% to €6.1bn.
The rollout of vaccines should be a game-changer for Coca-Cola HBC. “We expect to see a strong FX-neutral revenue recovery in 2021,” the company said recently. For FY2021 and FY2022, analysts expect revenue growth of 8.3% and 6.7% respectively.
Of course, if we see Covid-19 setbacks, Coca-Cola HBC could be impacted. This is a risk. But with the shares still about 25% below their all-time high and trading on a forward-looking P/E ratio of under 20, I think it’s a good time to be buying this reopening stock.
