What are the best post Covid-19 trade ideas?

Post-Covid-19 trends to watch

Although life may soon look entirely different to how it did at the beginning of the Covid-19 pandemic, there’ll still be stocks that seem well-placed to continue their momentum post-Covid-19 – under the emerging ‘new normal’. These include technology and cloud solutions stocks, which benefitted from the remote working necessities which have come to not just define Covid-19-era work, but the future of work for many.

In a more hawkish environment, as rates will likely rise, other stocks to watch are those of banks and financial service providers. This includes payment gateways such as Mastercard.

Another industry in which stocks may be currently undervalued, but could make a strong comeback post-Covid-19 is entertainment stocks. These especially include companies who have cashed in on the streaming revolution that has come to define the new normal, such as Disney+ or Netflix.

Top 5 trades after Covid-19 - our analysts’ picks:

1. Bank of America
2. Microsoft
3. Walt Disney
4. Salesforce
5. Mastercard

Bank of America

Bank of America is a corporation specialising in investment and commercial banking. It is one of the US financial services titans, alongside the likes of Merrill Lynch and JP Morgan Chase.

Bank of America had a tough 2020, with its final results showing a 35% drop in profits in January, thanks to disruption caused by the Covid-19 pandemic.¹ However, this was far better news than analysts were anticipating, largely due to the investment banking arm of the company bringing in more than $4 billion and equity advisory revenues increasing to almost $1 billion.

In its latest results, Bank of America reported that profits had more than doubled in Q1 of 2021, thanks to the bank’s ability to release loan-loss reserves that had been put aside due to Covid-19. ² The bank said these were no longer needed once the US economy began seeing improvements in the quarter.This equated to about 86c per share – streets ahead of Q1 2020's 40c per share and again significantly more than analysts were expecting, which averaged at around 65c per share.

What do our analysts think?

'Banking stocks provide one area that should benefit in an environment where rates rise, with many other sections of the economy seeing such an event as a potential roadblock to positive sentiment and economic demand. Nonetheless, with the economic outlook improving, banks ramping up dividends, and the Fed interest rate outlook turning increasingly hawkish, there appears to be a good environment ahead for US-listed banks.

One of the reasons Bank of America looks attractive is the support from major shareholder Warren Buffet. The bank makes up roughly 14% of the Berkshire Hathaway portfolio, providing investors with the confidence that, if it’s good enough for Warren, it’s good enough for them!'

– Josh Mahony, IG senior market analyst

Trade Bank of America

Microsoft

Microsoft, now worth more than $2 trillion and the world’s third-largest company (behind Apple Inc and Saudi Aramco in terms of market capitalisation), has benefitted from an accelerating digital migration trend. Working and studying from home has become even more widespread, as catalysed by the pandemic. These trends, which may not see the same acceleration into the future, are still likely to become part of a post-Covid-19 society adaptation. Microsoft cloud software and services have been, and will continue to be, essential tools in supporting this transition.

The Cloud and Azure offerings from Microsoft are leading earnings growth initiatives for the tech giant. This is reflecting in the substantial (and continuing) quarter-on-quarter (q/q) earnings growth recently. In its latest results , Q3 of financial year 2021 (FY2021), released end April, revenue had increased 19% compared to Q3 FY2020. Operating income was also up by 31%.³

Results for the next quarter will likely be even more impressive, as the company is expected to launch its highly-anticipated Windows 11 offering later in 2021.

What do our analysts think?

'Microsoft continues to carry a strong buy/buy recommendation from a poll of 39 analysts as of 12 July 2021, according to Refinitiv data. None of these surveyed analysts have a sell rating on the company. A mean of long-term price forecasts suggests a fairer value for the company at a share price closer to $300.

While we’ve seen accelerated price gains in the near term, long-term investors might prefer to capitalise and accumulate shares on short-term weakness, should it occur.'

– Shaun Murison, IG senior market analyst

Trade Microsoft Corp

Walt Disney

Walt Disney seems on the verge of finally getting its ‘happily ever after’ in after Covid-19, which disrupted the company’s profits due to theme park closures and delays in filming.

In the latest results, Disney reported that diluted earnings per share (EPS) for Q1 2021 almost doubled from $0.26 EPS in Q1 2020 to $0.50 EPS in Q1 2021.⁴ The company also announced that its parks and resorts were now open, filming had ‘ramped up’ and were all looking to make good gains. Apart from this, he company has enjoyed enchanting revenues from its Disney+ smash hit ‘Black Widow’ and is about to embark on a new, and potentially lucrative, cruise ships venture.

What do our analysts think?

'Walt Disney is an interesting stock right now, with the strong performance by Disney+ recently and, also, the fact that Disney’s entertainment parks could get back to full capacity after Covid-19 has run its course.

We believe Walt Disney shares may rise further in the second half of 2021 for many reasons. First of all, the success of the Disney+ streaming channel continues to set records and decrease the subscribers gap with its competitor Netflix. We also think that with the activities reopening, thanks to an efficient vaccination campaign, there’ll be a strong return both in movie theatres and in entertainment parks, such as Disneyland.'

– Filippo Diodovich, IG senior market strategist

Trade Walt Disney Co

Salesforce

US company Salesforce is one of the world’s most successful software businesses, providing cloud-based solutions that have grown significantly in popularity since working from home became ubiquitous in 2020.

Salesforce looks well placed to bring this momentum into life after Covid-19 too, with its latest results showing revenues of almost $6 billion, due largely to increased subscription revenues. This is a 23% increase from 2020, when many tech companies reached the height of their pandemic power.⁵

What do our analysts think?

'While many of its tech peers have enjoyed an incredible 2020, the growth in Salesforce shares has been more considered in nature. With the stock up just 27% from its pre-pandemic high, investors have focused their money on the likes of Microsoft (+48%), Oracle (+51%), and Google (+65%). Nonetheless, we’re seeing a bullish breakout for this tech giant, and this is the type of company that looks geared to profit from the continuous desire to strengthen online commerce and digital logistics.

While rising yields could occur once again as the economic outlook improves, the wider trend points towards lower yields, which benefits tech stocks over value names. Thus tech is going to be a key sector to find portfolio growth once the dust settles post-Covid.'

– Josh Mahony, IG senior market analyst

Trade Salesforce

Mastercard

Payments giant Mastercard, along with its associated peer Visa, maintain a duopoly in the world of electronic payment processing, networking and facilitation. The company is nearing three billion cards in issue and its level of investment success directly reflects the state of a global economy linked to transactional consumer spending.

Mastercard’s FY20 results reflected a near-double-digit revenue contraction, which highlighted the impact of a pressured economy and, in turn, reduced spending. International travel restrictions under the pandemic have also had a significant impact on group revenue.

However, as lockdowns and travel restrictions start to be lifted, Mastercard is starting to see green shoots of a global economic recovery. The company’s latest results showed increased revenue of $4.2 billion for Q1 2021, well ahead of analysts’ expectations. Plus, an 8% increase in gross dollar volume in the same quarter, which seems to suggest that Americans are spending more as life post-pandemic becomes imaginable again.⁶ Mastercard also expects revenues to increase by at least another 20% in its next quarter as consumer spending and domestic travel within the US increases.

What do our analysts think?

'Mastercard has already seen a return to revenue growth in the first quarter of 2021, reflecting the global recovery while remaining well poised to benefit from sustained economic growth. It maintains a buy recommendation from a poll of 45 analysts as of 12 July 2021, according to Refinitiv data. None of these surveyed analysts have a sell rating on the company. A mean of long-term price forecasts suggests a fairer value for the company at a share price closer to $431.'

– Shaun Murison, IG senior market analyst

Trade Mastercard

How to trade in stocks

With us, you can trade on the best post-pandemic companies’ share prices.

Trading shares with us means that you’ll be speculating on a company’s share price without owning the shares directly. Instead, you’ll be opening a position with CFDs, which are leveraged derivatives.

CFDs is leveraged derivative. This means that you can open a position with a deposit, called margin. While this can lower the cost of the trade, it will amplify both profits and losses – as these will be based on the full position size.

Learn more about the impact of leverage on your trading

Best post-Covid trade ideas summed up

• With mass vaccinations and the end of lockdown measures in many countries, the world begins to look toward a life after Covid-19 and what stocks might be good trades for that time
• Our analysts have picked five stocks to watch, some of which seem well-placed to maintain the momentum they had during 2020, others likely to pick up steam post-pandemic
• Banking stocks, payment gateway companies, cloud-based tech stocks and certain entertainment stocks are among those recommended

Sources

¹ Financial News, 2021
² AP News, 2021
³ The Microsoft Company, 2021
⁴ The Walt Disney Company, 2021
⁵ Salesforce, 2021
⁶ MarketWatch, 2021