Tuesday 24 March 2020 12:01 am

Silver linings: Positive investment trends for stock market optimists

Luke is a former City AM features writer, now features editor for Tyto PR

Stocks investors are likely to be feeling battered and bruised at the moment. The coronavirus-induced bear market has seen share prices fall sharply — even the UK’s blue-chip FTSE 100 index is down more than 30 per cent since the start of the year. 

Many industries are facing hurdles due to the government’s self-isolation guidelines, and some businesses may even need to be bailed out by the state (specifically the airline carriers).

Given all this doom and gloom, it’s easy to be pessimistic about equities at the moment. But there are some sectors that are coping, or even thriving, in the current crisis. For stock market optimists, these bright spots may prove worth considering.

Supermarket sweep

Despite the government’s warning that there is no need to stockpile, many consumers simply aren’t listening. We’ve all seen the photos and heard the stories of empty supermarket shelves. In fact, food sales last week at the big four chains — Tesco, Sainsbury’s, Asda and Morrisons — were up 50 per cent year-on-year.

While there are concerns that the supermarkets will be unable to keep up with this massive jump in demand, for the moment they are generating a lot of sales, and this is proving positive for their share values. Sainsbury’s stock price has jumped 15 per cent from a low of 174.95 pence on 12 March — although its stock price is still negative year-to-date, like many others. Morrison’s share price also rose sharply last week, before falling back. 

Measures by the government to support the industry, such as this week relaxing competition laws so that supermarkets can work together to keep shelves stocked, should also prove positive.  

Special delivery

Due to the need for social distancing, many if not most people are now working from home. As such, demand for delivery services is rising. 

Those who don’t want to brave crowded supermarkets are turning to online solutions. This is benefiting the digital grocer Ocado, which is one of the few companies on the market whose stock price is actually positive year-to-date. 

The company’s finance director told the Sunday Times that it is processing 100 times the normal level of transactions. The current shift in consumer behaviour, as more people shop for groceries online, could become a regular habit even once society has returned to normal.   

Another beneficiary of the rising demand for home delivery is, of course, Amazon. The US company recently announced that it would hire 100,000 people, and give its US workers a pay rise, in order to meet increased customer demand.  

As a result, Amazon’s share price has proven resilient. While it is negative year-to-date, it is down just three per cent, and as such is outperforming the wider index where Amazon is listed, the Nasdaq, which is down more than a quarter since the beginning of the year.

Major Cities In The U.S. Adjust To Restrictive Coronavirus Measures
Amazon has been doing a roaring trade during the pandemic (Getty) (Getty Images)

Tech time

Another result of social distancing is that the UK is currently embarking on the largest remote working experiment ever. And companies are rapidly figuring out how to handle the shift.

Many analysts believe this will prove positive for companies providing the technology and equipment needed to make this happen (this will also benefit companies like Amazon who will deliver many of these goods). 

Cloud computing providers such as Microsoft should benefit. Apple and Intel will also likely see higher demand due to a “refresh cycle” as those forced to work from home invest in new personal computers. And those providing the servers required for businesses to go digital-only will see greater demand.

In the lab

Given the nature of this pandemic, many are hoping that the life sciences sector will provide the vaccine needed to combat the coronavirus. But there will also be greater demand for other life-saving drugs and medical care over the coming months. 

As such, investors may want to consider adding exposure to biotech and healthcare stocks to their portfolios. 

“Life sciences is a defensive sector where you can often find companies with stable businesses experiencing steady demand that leads to consistent and often growing cash flow,” says Patrick McMahon, senior partner at Cambridge-based consultancy Bidwells. 

“In the current climate, investors should expect shares in drug manufacturers to perform well. Take AstraZeneca for example, which is reportedly working on research agreements with a number of western governments to find a cure for Covid-19. A deal would see demand for its services skyrocket, increasing investor appetite significantly.”

AstraZeneca’s share price is currently down around 13 per cent year-to-date. A significant drop, but again it means it is outperforming the FTSE100 which is down by more than 30 per cent. 

In recent weeks, stock markets have fallen as panicked investors liquidate their positions to hold onto cash. It’s not yet clear when will be the right time to buy back into stocks, or if we have yet hit the bottom, but for those brave enough to put their money to work, these may be the trends and sectors to consider.