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A year after Covid-19 rearranged global markets, sparking a brutal sell-off for many stocks and creating new lockdown darlings, the prospect of vaccine-led reflation is turning the tide for the pandemic’s biggest laggards.
High-profile stocks hit hardest during the early days of the crisis have helped stock benchmarks around the world soar to near-record highs. Like a European tour operator TUI AG and American slow owner Simon Property Group Inc. are among those who have risen the most.
“Those laggards present great opportunities,” said Hani Redha, a portfolio manager at PineBridge Investments, referring to stocks of airlines, cruise lines and hotels. “We are on the more optimistic side that there is a lot more normalcy coming back sooner than you might think.”
Increasing optimism among investors about an end to months of lockdowns and travel restrictions is also reflected in the recent underperformance of the stocks that were among the biggest winners of the pandemic. The will of Zoom Video Communications Inc. and Germany Delivery Hero SE, which boomed as the coronavirus took hold and changed the way we all live, is now well away from their peak ratings.
Where the stocks most exposed to the pandemic go from here will of course depend on the virus and the speed and effectiveness of the vaccine rollout. Below is an overview of the options per sector.
Stay-Home Stocks
The hottest trading of 2020 has lost some of its shine in recent months as investors in other sectors pursue cheaper valuations and higher growth expectations. Shares of companies such as Zoom, Netflix Inc. and Amazon.com Inc. has been lagging behind the broader market since late October.
Wall Street estimates haven’t dropped for Zoom in months and the stock is trading about 27% below its 2020 peak. Amazon has been down since September, with news of rising sales and earnings provoking a shrug of the shoulders of analysts.
There are similarities in Europe. Delivery Hero is about 16% below a peak in January, while that in France Ubisoft Entertainment SA and UK online grocer Ocado Group Plc has relapsed after results failed to yield new catalysts.
But some of the region’s pandemic winners have continued to thrive, indicating a more selective approach among investors. Payments firm Adyen NV, which is up more than 160% in 2020, and the Swedish online casino operator Evolution Gaming Group AB, which nearly tripled last year, continued to set records almost daily. German meal pack company HelloFresh SE is another one that has made significant gains in 2021.
Worst to First: 2020‘s Nikkei Stock losers are 2021‘s Winners
“We will never go back to where we were pre-pandemic,” said Alasdair McKinnon, chief manager of the Scottish Investment Trust, citing the businesses that thrived as a result of working from home, online shopping and the demand for home entertainment equipment. . “But I just think we’ve seen the absolute best terms you can get for these companies.”
Retailers
Investors are betting that increased demand from online shoppers will survive the pandemic like only digital retailers Etsy Inc. and EBay Inc. in the US and Asos Plc in the UK continues to outperform in 2021.
But according to Bloomberg Intelligence analyst Poonam Goyal, clothing retailers love Urban Outfitters Inc. and department stores such as Kohl’s Corp. will have a chance to regain some market share lost to ecommerce as retail traffic starts to recover later in the year Both stocks have gained more than 18% this year, outperforming the S&P 500 Index, while those of Europe Hennes & Mauritz AB is up 9.9% to trade at a high close to 12 months.
Online Boom
US and European e-commerce stocks will continue to boom in 2021
Source: Bloomberg
Reduced competition for brick-and-mortar outlets after some stores closed for good during the pandemic is likely to benefit brands such as Associated British Foods Plc’s Primark, said Alan Custis, head of UK equity at Lazard Asset Management LLC. He expects consumers to want to visit the store after lockdown restrictions are relaxed.
“People are still enjoying the actual shopping experience, despite the fact that we know that online has really grown because of this pandemic,” said Custis.
Travel and leisure
The travel and leisure industry has made a comeback, but many groups such as airlines and cinema chains remain well below pre-pandemic levels.
One of the best performers Live Nation Entertainment, which has gained more than 80% since late October and trades on record. Investors are betting that pent-up demand will lead to an increase in income and profits, although some do analysts have warned valuations can be too frothy.
In Europe, optimism about a resumption of travel and tourism plays a part InterContinental Hotels Group Plc and Budget Airline Ryanair Holdings Plc will cover all of their pandemic losses. Morgan Stanley analysts this week raised price targets for InterContinental and other European leisure stocks, noting pent-up demand for travel.
Still, Rory Alexander, a UK equity manager at M&G Investments, sees so-called staycations continuing to be fashionable for the next two years, with consumers shifting to domestic leisure activities such as bowling. Meanwhile, UK pub operator shares have already “rebounded” and Alexander already sees a high level of optimism embedded in some of the travel and leisure stocks.
Property
In the US, data center owners love Equinix Inc. and Last year, Digital Realty Trust Inc. the stocks that had to be owned last year when the demand for computing power soared. That script has been flipped over in recent months, with investors rotating in reports REITs exposed to retail. Mall owners Simon Property and Kimco Realty Corp. both have gained more than 70% since the end of October.
It is still a challenge in Europe. Analysts said recent results of Unibail-Rodamco-Westfield, the largest mall lessor in the region, no positives. Pear Klepierre SA said this week that the current lockdown measures affecting 60% of its stores will continue reached its cash flow this year, but indicated that the restrictions on shoppers could ease after March. Both stocks extended their fall in 2020 this year.
Office landlords have also suffered because their properties are vacant, although rental collection has held up better than their retail-focused peers and there remains an expectation among analysts that stocks would like Alstria Office REIT and Covivio SA will recover when economies recover.
However, that does not remove the existential threat posed by a larger proportion of homeworkers. It is likely that developers will thrive with newer buildings that can be adapted to the changing demands of employers and employees.
– With the help of Sam Unsted and Lisa Pham