Recently the post lockdown stocks have been under the spotlight. With vaccination programmes well underway, investors are looking for stocks that could benefit as the world returns to normal.
Plenty of stocks, particularly those in the travel and leisure, have already had incredible runs leading me to believe that good news is already priced in. A lot of these have very weak balance sheets, which means they will probably need to raise more cash.
So here are two reopening stocks I’ll buy for my own portfolio, that will rise as Covid-19 restrictions are lifted. they’re also poised to benefit from long trends as well, meaning they offer long term investment appeal as well.
A top UK post lockdown stock
One UK100 stock that strikes me as a good reopening play is Diage(DGE.L). It owns Tanqueray, Johnnie Walker, Smirnoff, Guinness and a whole lot of other well-known alcoholic beverage brands. If restaurants, pubs, and bars reopen soon, and travel picks up, Diageo’s bottom line should get a massive boost.
Diageo isn’t the cheapest stock, with its forward-looking P/E ratio using the earnings forecast for the year ending 30 June 2022 is about 22. This means there’s some valuation risk. If there are Covid-19 setbacks this year and we face more lockdowns, the stock could underperform.
However, I’m not particularly worried about these short-term risks as DGE has long-term growth potential. By 2030, the company expects hundreds of millions of extra consumers in developing countries to be able to afford its products. With Diageo’s share price still around 20% below its all-time high set in 2019, I think it’s a good time to be building a position in the UK100
A top payments stock
Another top reopening stock, in my view, is credit card giant Mastercard(MA). A leader in the payment space, it connects billions of consumers, millions of merchants, and thousands of financial institutions globally.
I think Mastercard will benefit from the reopening of the global economy is that it generates a large proportion of its revenues from travel spending. If we all start travelling again in the near future, its top line should get a significant boost. And there’s certainly a lot of pent-up demand to holiday.
Be cautious as Mastercard is an expensive stock. Currently, it has a forward-looking P/E ratio of 43. This high valuation adds risk. Another risk to consider is that the payments industry is evolving rapidly. FinTech companies such as PayPal and Square might steal the market.
However, in my opinion, the long-term risk/reward proposition remains attractive. In the next 10 years, nearly 4 trillion transactions worldwide are expected to move from cash to credit cards and e-payments. So there looks to be a substantial growth runway ahead for this stock.