A sharp divide between market winners and losers was one of the stories of 2020. Amid all the doom and gloom, some companies were able to adapt and reward investors through the pandemic where others faltered.
ASOS, the online-only clothes retailer, today reported that its sales were up 23% in the four months up to 31 December, with its active customer base increasing by 1.1 million to 24.5 million.
Perhaps most significantly for investors, whose focus lies more with the future than the past, the company lifted its guidance on annual profit, now expecting pre-tax profit to be at the top end of market expectations.
ASOS reminds us there’s opportunity out there if you look in the right places. The question now is whether today’s opportunities are the same as yesterday’s.
One of the key differentiators last year was how companies were able to adapt to 2020’s challenges. ASOS benefitted from being an online-only retailer. That meant it was well poised to swoop in on shoppers who found themselves debarred from the high street during lockdowns.
The importance of a strong online presence is evidenced by another “winner”, Ocado. Like ASOS, Ocado has only ever been an online platform. That meant it had a significant leg up on competitors, which scrambled to get their platforms up to speed when shoppers took to their screens rather than store aisles.
Think about how other habits changed over lockdown. Did you take up a hobby? Perhaps you got into cycling? Maybe you even bought a dog? If you did, you weren’t alone. Faced with so much free time, the British public splurged on housebound distractions. That saw rising fortunes for companies like Pets at Home, Halfords, and even Brompton Bikes. The fold-up bicycle company today announced a massive investment drive to keep up with demand. According to managing director, Will Butler-Adams, the company has “decided we’re going for it.”1
But, as you may have heard us say before, past performance is not a reliable indicator of future returns. 2021 has started where 2020 left off, but the hope is that the end of this year will look a lot different from how it began. Those who profited last year won’t necessarily be tomorrow’s winners.
The stocks above have done well, but it’s important you look at the fundamentals behind their success. ASOS and Ocado, for instance, enjoyed their online advantage, but the competition has now had plenty of time to catch up. Whether they can build upon their success and maintain their edge will be a key question for investors. I’d be keeping an eye on supermarkets like Tesco and Sainsbury's, which both did well last year and reinvested sensibly, without hogging the limelight like Ocado.
For those that suffered last year but kept their heads above water, 2021 could be interesting. Consider airlines. They had a terrible 2020, for obvious reasons. Come the slightest hint of things returning to normal, however, and it’s the airlines everyone hurries to. When news emerged of a successful Pfizer vaccine, the share prices of TUI, British Airways owner IAG, and easyJet all rose significantly. Even bigger risers included Rolls-Royce and travel catering company SSP Group.
Banks could fare well too. Typical “cyclical” companies, their performance tends to reflect the state of the economy - when things are going well, so are the banks. A bounce back in activity should serve them well.
All this puts the UK in a good position compared with other global markets. Years of Brexit turmoil and a preponderance of industries ill-suited to the pandemic has left little love for our home market. All that means it’s looking cheap - the UK is cheaper relative to global shares than it has been in at least 25 years.
Cheap, of course, is not the same as under-priced. But there are reasons to be optimistic. The Brexit situation has been clarified. If/when the world gets back to normal, the UK should be a major beneficiary. Those industries that suffered last year - financials, industrials, retail, and so on - will look a whole lot more attractive in better times.
There’s a lot to keep an eye on this year. To help you through the first part, you can read Tom Stevenson’s Investment Outlook for Q1.
1- Financial Times
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