Storm Uru

Three stocks for a post-vaccine world

Storm Uru

Stockmarkets around the world rocketed on Monday after the announcement that Pfizer and BioNtech may have found an effective and safe vaccine. This rise was to be expected on the news that has given the world light at the end of the pandemic tunnel.

The initial focus of attention has been on pharma stocks and sectors that have been amongst the hardest hit by the lockdowns. We are focused, however, on a few global leaders at the epicentre of this crisis that we believe are offering compelling value opportunities. These are quality companies in sectors that have suffered from a fall in demand but which crucially are not structurally challenged unlike some recent highfliers and others that have been thrown out with both the airlines and cruise lines.  

An example is Amadeus, which takes a small slice of revenue from airline tickets booked on its network and which took quick action to rationalise its cost base and free up liquidity. This means that as it emerges from this crisis, it is well-positioned to not only take share but also benefit from higher operating leverage.

Unlike its competitors, this airline booking system leader was able to continue to invest in R&D over the last nine months to develop new services that make its customers, the airlines and airports more productive and shift critical operations to the cloud. So as the airline industry emerges from its hibernation, Amadeus is well-positioned to benefit from the return in demand.

Compass Group is another example of a company which has felt the full impact of a collapse in demand, but management worked quickly to slow cash burn so that the company could be idle until a vaccine was developed. Whilst management did renegotiate some contracts to cost-plus, replacing the more profitable fixed price contracts, the company is well positioned to execute on new contract wins as the workforce returns to the office. Longer term, the way we work has changed but the company will significantly benefit from a return to normality as areas of the economy like sports events return over time.  

Lastly, not all big tech is going to find the next six months difficult. Visa, which benefited from a structural shift to cashless payments, has underperformed its peers this year as its very profitable cross-border revenue collapsed as travel disappeared. Now we have a vaccine with high efficacy, Visa will experience an increase in demand for its core services as people return to the sky. We also expect the shift to cashless transactions to not only stick but accelerate over the next five years unlike some other demand, such as online shopping that may take a pause as consumers enjoy a more balanced approach to shopping over the next 12 months.

We still need the bridge over troubled waters until health authorities can efficiently distribute the vaccine to the global population, and we need more than one vaccine. But the market is a forward-looking mechanism so even if it takes 12 months before we get herd immunity, we believe there are opportunities to invest in great companies at attractive valuations.

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Thursday, November 12, 2020, 10:53 AM