Looking beyond Covid-19 for investment ideas

The impact of the coronavirus on our society has almost been equalled by its effect on the economy as many businesses around the world are having to close or reintroduce severe restrictions. In the UK, we are facing circuit-breaker lockdowns, elsewhere, there are curfews and new plans to tackle the spread. But the prospects for many companies are such that investors should look past the short-term picture, as opportunities abound.

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What could be a better investment than a company that might come up with the solution to the biggest issue of our time?

Of course, it’s not quite as simple as that.  However optimistic some politicians may be (including President Donald Trump), the vaccine is not available quite yet. But shares in Pfizer rose late last week after the US drug maker said it might file for US authorization of the vaccine it is developing with German partner BioNTech as early as late November. Clearly, if Pfizer can deliver the vaccine, investors could reap massive benefits. 

For cautious investors, Pfizer has additional attractions. Like other pharmaceutical companies, it is regarded as “defensive”. This means the shares are less volatile and suffer less in market downturns. Pfizer is huge, with a market capitalisation of some $200bn. Although Covid-19 is an exceptional case, the shares will never be dependent on any one product or ailment. Pfizer has had success in developing treatments for a wide range of conditions including muscular dystrophy, dermatitis and various forms of cancer. It has strong partnerships with other major players in the sector, including GlaxoSmithKline.

Its shares’ recent rally means they are not as cheap as they were, but there could yet be more upside and the potential downside appears limited.

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The name will be familiar, but investors should be clear about what this FTSE 100 company does. It’s not the maker of luxury cars — that business is now owned by Germany’s BMW. The Rolls-Royce we’re talking about is an engineer: it makes engines for aircraft.

For sure, demand for its products and maintenance services has been badly affected by the pandemic, which has hammered airlines and businesses associated with them. The company reported a massive loss of £5.4bn for the first half of the year. Rolls-Royce even had its debt downgraded to junk status by the ratings agencies.

The shares dived to their lowest in 17 years. However, many analysts said there was too bleak an outlook priced in. Rolls-Royce remains well placed to bid for lucrative business, such as government defence contracts. It has taken action to cut costs. It has also raised some £5bn in recent weeks by issuing bonds and equity, and obtaining an additional bank loan. It is bringing in yet more money by selling off at least one division.

The shares doubled from their low at the start of October in a matter of days. Indeed, the rally was so strong that some investors will now feel they may have missed the boat. Not necessarily so. The shares still trade at about a quarter of the level they hit in 2018. The rally may have further to go, and investors may want to buy on the dips.

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Etsy may not be as well known as bigger rival eBay, but it is worth investors taking a look. Like eBay, it is an online marketplace. However, it has a sharper focus, specialising in handcrafted and vintage goods. Etsy shares have gained more than 40% over the last month and have more than tripled since early summer. The market capitalisation of the New York-based company is more than $16bn.

One reason for this surge in trade is that some people like their facemasks to be made to a certain quality and look a certain way – and the suppliers on the platform have jumped to meet the need. However, this suggests that Etsy’s fortunes are tied to the coronavirus pandemic remaining in place and this is not so.

For the three months to June, the company’s revenues were $428m, more than double the same period a year earlier. Net income rose more than fivefold to $96.4m. Facemasks were a factor, but the falling number of shops on the high street, something that has been going on well before the pandemic, has also helped. 

During the second quarter the Etsy marketplace saw an influx of 18.7 million new buyers and reactivated buyers – those who haven’t purchased in a year or more.

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