Top pandemic stocks to watch as the global economy recovers

Are those stocks that were hardest hit by the pandemic set to stage the strongest recovery when the economy reopens?

Charts (4)

What stocks have been worst-hit by the pandemic?

The pandemic has disrupted virtually every industry one way or another. We have seen tech-savvy businesses thrive. Other companies have adapted well to the dramatic shifts in behaviour by digitising their businesses or proving the benefits of diversification. However, some businesses have had little choice but to bunker down and do what they can to keep things ticking over until things get back to normal.

There are several sectors, ranging from travel and leisure to hospitality and retail, that are at the epicentre of the coronavirus crisis. They have been among the hardest hit by lockdown restrictions, and this is reflected by the steep falls these types of stocks have suffered over the last year.

Many of these so-called epicentre stocks have been forced to rely on government funding, additional debt and on tapping shareholders for cash to survive whilst they remain closed or running at significantly reduced capacity.

It is a waiting game, one that will only end once governments feel it is safe to lift restrictions and the economy can get going again. That, in turn, is largely reliant on the success of the vaccination programme in both preventing infection and protecting people against new variants.

A sense of normality has already returned to countries that took swift action to prevent the virus from spreading in the first place, such as Australia and New Zealand. However, even those countries that are among the worst-hit by the pandemic see light at the end of the tunnel, demonstrated by the UK outlining its roadmap out of lockdown that could see all restrictions lifted by as early as June.  

Stocks to watch as the economy recovers

The stocks that have suffered the most during the pandemic will be the ones to benefit the most when restrictions are eased because they have the biggest recovery potential. Share prices have suffered heavily but their prospects look brighter as the world cautiously approaches the end of the pandemic, presenting an opportunity for traders.

Airline stocks

The number people travelling collapsed during the pandemic. Global traffic was two-thirds lower in 2020 than in 2019, representing the sharpest annual contraction of all-time. Airlines have been among those to report the largest losses and required the most government support.

The industry should start to bounce back in 2021 but it will be many years before traffic returns to pre-pandemic levels. Domestic travel is expected to bounce back quicker than international travel, so operators in large countries like the US, such as American Airlines, United Airlines, Delta Airlines and Southwest Airlines, are likely to stage a quicker recovery than those relying on international routes.

The fate of other major airlines that rely more on flying to other countries such easyJet, Ryanair, Lufthansa and Air France will rely on how co-ordinated nations are with rolling out vaccines and the willingness to accept passengers from other countries. Co-ordination between countries will be key.

Cruise stocks

Cruise ships found themselves under the spotlight when the pandemic erupted, with some becoming petri dishes for the virus to spread among passengers. Understandably, most cruises remain suspended but most are hopeful of restarting operations this year.

The outlook depends on what country you are talking about. Canada has taken a harder stance by banning most cruises until 2022. Other countries like the US and the UK could give the green light as early as April.

It is a rapidly-changing situation. It may take time for things to return to normal, but the situation can only get better for the likes of Carnival, Norwegian Cruise Line and Royal Caribbean Group, which have been firmly shut for the best part of a year.

Public transport stocks

Stay at home rules have meant people have been travelling less, with many no longer commuting to offices and making fewer trips out. This has weighed on public transport providers as the number of passengers on trains, buses and taxis has fallen.

For example, in the UK, where some of the strictest lockdown measures have been used, passenger numbers plunged as much as 96% on trains and by 80% on buses. However, passenger numbers swiftly climbed when rules were eased last year. With lockdown still in place, passenger numbers remain low but these should climb quickly once stay at home rules are lifted, bringing operators like Go-Ahead, Firstgroup, Stagecoach and National Express back onto the radar.

The same is true for ride-sharing companies such as Lyft and Uber. Both have suffered as less people travel, although Uber has been able to switch its focus to its fast-growing delivery division bring people food and other items during lockdown.

Hotel stocks

When travel falls, so does demand for hotels. That has weighed on stocks like Marriott, Whitbread and InterContinental Hotels, but all should be well placed to stage a recovery this year as people start to leave their houses and travel again.

As mentioned earlier, domestic travel is likely to recover quicker than international travel, which could drive staycation campaigns and a change in strategy for those that usually rely on international travellers.

Footfall stocks

There are many stocks that rely on high footfall areas. People do not necessarily head out to specifically shop at places like Starbucks, Greggs or a WH Smith, but end up popping in for a coffee or a snack whilst out shopping or travelling and are therefore set to see increased customer numbers when stay at home orders are lifted.

Cinema stocks

Cinemas have suffered along with other non-essential retail during lockdown, but have had the added problem of having a lack of blockbuster titles available to entice customers to return when they have been able to reopen.

This is because film studios have become accustomed to releasing new titles on the same day around the world in order to streamline marketing activities and preventing piracy. However, with lockdown rules varying country-to-country, studios have delayed releasing their films.

The big threat comes from the streaming platforms that have become attractive distribution channels for new film releases, with Disney having utilised its new platform to distribute its new films like Mulan. There are still big questions about whether this strategy will continue once cinemas reopen.

This will continue to pose a problem for stocks like Cineworld, AMC and Cinemark even after they open their doors again. It will require a global recovery to give studios the confidence to release big-name titles, which could cause a slower recovery for cinemas compared to other areas of leisure and hospitality.

Clothing retail stocks

People have been less inclined to update their wardrobes during the pandemic because social events have been off the table. However, there will be significant demand for clothing for every occasion as the economy starts to reopen, whether it be for work or play.

This is good news for the clothing retailers that have had to shut their physical stores. However, with people having become more accustomed to ordering online, there are questions about how many people will opt for the high street or shopping centre when they could order it from the comfort of their own home from stocks like Boohoo or ASOS. The need for retailers to shift online will not subside once stores reopen.

Casino and resort stocks

Casinos are big business in the US and the pandemic forced every single one of them to close, but most are now reopen in some format. The American Gaming Association reports only 69 casinos were closed as of March 5, with 929 having reopened.

Most are operating at reduced capacity or have only been able to restart certain parts of their business. But stocks like MGM Resorts and Wynn Resorts will be hoping to welcome considerably greater customer numbers in the future.

Other gambling stocks like Entain, Flutter and William Hill are also worth paying attention to. Traditional bookmakers have done well online during the pandemic, but they still have large networks of stores that remain largely closed. Plus, sports betting should increase once restrictions in pubs and stadiums are lifted.

Medical stocks

Healthcare may be under the spotlight during the pandemic, but it has put hospitals under strain and weighed on their ability to treat patients with other illnesses and postponed non-essential surgeries. This has caused lower demand for stuff like wound dressings and surgical devices made by Smith & Nephew. Other stocks like private healthcare firm Mediclinic has been providing vital services during the pandemic, but it has squeezed profits as it scrambled to switch its focus from day-to-day healthcare to helping patients with the virus.

Both stocks should benefit as healthcare systems restore their services applied to other illnesses and conduct more elective and non-essential surgeries.

Will it be smooth-sailing for pandemic stocks from here?

The outlook for these pandemic or epicentre stocks that have been hardest hit by the pandemic is certainly brighter since countries launched their vaccination programmes, providing hope that can reopen and start to build momentum this year.

However, there is no guarantee that it will be business as usual. Many of the drastic shifts that have happened over the past year will be permanent and this could cause longer-term problems for some. Will people prefer to head back to the shops or keep buying everything on their phones? Will cinemas have to compete with streaming services for the rights to new films? Will people’s travel habits be forever changed? And will we all return to the office or is remote working here to stay?

How to trade the economic recovery

You can trade all of the stocks mentioned in this article with City Index using spread-bets or CFDs, with spreads from 0.1%.

Follow these easy steps to start trading stocks and shares today.

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for the stock you want in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

Are ETFs a better way to trade the recovery?

An alternative way to trade the economic recovery is using Exchange-Traded Funds, or ETFs. These allow you to speculate on an entire industry or sector rather than having to place your bets behind an individual or small handful of stocks.

For example, with transport set to start climbing as lockdown is lifted, an ETF like the iShares Transportation Average could be one to watch. It provides exposure to US airline, railroad and trucking companies.

Or there is the Consumer Discretionary SPDR ETF, which holds a number of companies that are yearning for things to get back to normal like Starbucks, McDonalds, Home Depot, Lowe’s and Target, as well as a number of pandemic-proof stocks such as Amazon. Savings have increased during the pandemic as people have been stuck at home, and there is money to spent on discretionary items once the rules are lifted.

You can trade both of these ETFs and many more with City Index, just log-in to the platform and search for the one you want to trade.

Build your confidence risk free

More from Equities

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.