NEW DELHI: 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.
Standout stocks hit hardest during the early days of the crisis have helped stock benchmarks around the world soar to near record highs. The European tour operator TUI AG and the American shopping center owner Simon Property Group Inc, among others, are among those who have gathered the strongest.
"Those laggards have great opportunities," said Hani Redha, 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-long lockdowns and travel restrictions is also reflected in the recent underperformance of the stocks that were among the biggest winners of the pandemic. Zoom Video Communications Inc and Germany's Delivery Hero SE, which boomed as the coronavirus took hold and changed the way we all live, are now well off their peak ratings.
Where the stocks most exposed to the pandemic come from 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.
The hottest trading of 2020 has lost some of its shine in recent months as investors pursue cheaper valuations and higher growth expectations in other sectors. Shares of companies like Zoom, Netflix Inc and Amazon.com Inc have lagged behind the broader market since late October.
Wall Street estimates haven't shifted for Zoom in months, and the stock is trading about 27% below its 2020 peak. Amazon has been flat since September, with news of surging sales and earnings picking up analysts.
There are similarities in Europe. Delivery Hero is about 16% below a January peak, while French Ubisoft Entertainment SA and UK online grocer Ocado Group Plc have fallen back 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. Payment company Adyen NV, which rose more than 160% in 2020, and the Swedish online casino operator Evolution Gaming Group AB, which nearly tripled last year, have continued to set records almost daily. German meal kit company HelloFresh SE is another company that has made big profits in 2021.
"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."
Investors are betting that increased demand from online shoppers will survive the pandemic, with digital retailers such as Etsy Inc and EBay Inc in the US and Asos Plc in the UK continuing to outperform in 2021.
But according to Bloomberg Intelligence analyst Poonam Goyal, apparel retailers like Urban Outfitters Inc and department stores like Kohl's Corp have a chance to regain some of the market share lost to e-commerce as store-based traffic begins to recover later in the year. Both stocks are up more than 18% this year, outperforming the S&P 500 Index, while European Hennes & Mauritz AB is up 9.9% to trade at its all-time high near 12 months.
Diminished competition for brick-and-mortar outlets after some stores closed for good during the pandemic will likely benefit brands such as Primark of Associated British Foods Plc, said Alan Custis, head of U.K. Equities 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 is Live Nation Entertainment, which has gained more than 80% since the end of October and trades on record. Investors are betting that pent-up demand will lead to an increase in revenues and profits, although some analysts have warned valuations could be too frothy.
In Europe, optimism about a resumption of travel and tourism has helped the shares of InterContinental Hotels Group Plc and budget airline Ryanair Holdings Plc recoup all of their pandemic losses. Morgan Stanley analysts this week hiked 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 going on 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.
In the US, data center owners such as Equinix Inc and Digital Realty Trust Inc were the stocks they owned last year when the demand for computing power boomed. That script has been flipped over in recent months, with investors rotating in reports of REITs exposed to retail. Retailers Simon Property and Kimco Realty Corp have both gained more than 70% since the end of October.
It is still a challenge in Europe. Analysts said recent results from Unibail-Rodamco-Westfield, the region's largest shopping center lessor, did not include any positives. Peer Klepierre SA said this week that the current lockdown measures affecting 60% of its stores will continue to affect its cash flow this year, although he indicates 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 analysts continue to expect stocks like Alstria Office REIT and Covivio SA to rebound as the economy recovers .
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.