The pandemic might be firmly behind us, but many companies are still only just starting to get back to pre-pandemic levels of business. As such, some stocks are yet to fully recover, as investors wait for signs that no permanent damage has been done. In my eyes, this makes some sectors in the stock market very appealing for an opportunity that comes along rarely.
Starting to reach altitude
One area in focus is airline and travel stocks. This was one of the parts of the market that was hit hardest by Covid-19. Travel bans grounded fleets of planes. Revenue dried up, costs continued and debt levels spiralled.
Yet in several Q1 updates, this tide can be seen to have changed. For example, easyJet commented that the ticket yield for Q1 was 85% of Q1 2019 levels. In February, IAG reported that it managed to swing from a loss in 2021 to a small profit in 2022. For this year, it anticipates growing profits to several billion.
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We’re reaching that inflection point where airline stocks should start to become profitable again. Yet I feel the market hasn’t caught up with this possibility yet. For example, the IAG share price might be up 10% over the past year, but it’s still not even half the price it was before the pandemic started. There’s plenty of room to move higher.
Property as a cyclical sector
Another area in the stock market that I feel offers gems is the property sector. This is related to the pandemic — in fact property prices jumped over the course of the lockdowns. However, since the start of last year we’ve seen this unravel. Part of it is a natural correction in house prices after the surge. The other element is the high cost of mortgages, given interest rate hikes.
The bottom line is that property stocks have taken a beating. Over the past year, the share prices for Taylor Wimpey and Barratt Developments are both down 11%. And over a broader two-year period, Barratt is down 42% and Taylor Wimpey 38%.
I feel this is a unique time to be able to buy property developers on the cheap. We’re at that stage of the economic cycle when what follows should be a recovery and then a boom period. Granted, this could take years to play out. But in taking a long-term view, investors can recognise the opportunity now.
Balancing everything up
Of course, there are risks to my views. The current share prices and stock valuations are a part of my justification for calling this a once-in-a-decade opportunity. But there’s nothing to stop the prices falling from here, making the stocks cheaper.
The cost-of-living crisis could also be an external factor that could limit share price gains. It may mean cause people stay in the UK instead of flying abroad, and that they rent, instead of buying a house.
That said, I still feel all of the above stocks offer investors huge potential and good value right now.
