Interactive Investor

These shares are back in favour as tech stocks dive 

The PM’s roadmap for re-opening the economy was not the only factor in a dramatic session for investors.

23rd February 2021 12:55

by Graeme Evans from interactive investor

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The PM’s roadmap for re-opening the economy was not the only factor in a dramatic session for investors.

Boris Johnson - GettyImages-1231328365

It was all change on the London market today as investors dumped high-flying tech companies and the pandemic's lockdown winners in favour of playing the re-opening trade.

The rotation into bombed-out travel and leisure stocks ensured a second session of big gains for the likes of easyJet (LSE:EZJ), Cineworld (LSE:CINE) and airport caterer SSP Group (LSE:SSPG), while the army of retail investors at Rolls-Royce (LSE:RR.) were given much-needed cheer at the top of the FTSE 100 index.

Heading in the other direction were B&Q owner Kingfisher (LSE:KGF), discount retailer B&M European Value Retail (LSE:BME) and delivery chain Just Eat (LSE:JET), having reaped significant gains from trends related to households being stuck at home for months on end.

But the influence of the Prime Minister's roadmap for re-opening the UK economy was not the only factor in a dramatic session for investors. Rising commodity prices fuelled by hopes for a sharp rebound in the global economy have created inflationary concerns, leading to a sharp rise in US Treasury yields in recent weeks.

That diminishes the appeal of growth stocks, with Wall Street's Apple (NASDAQ:AAPL), (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) contributing to the Nasdaq dropping more than 2% last night. The selling was replicated in London as Tesla (NASDAQ:TSLA) backer Scottish Mortgage Investment Trust (LSE:SMT) was down 8% or 100p to 1,167p and cyber security company Avast (LSE:AVST) fell 18p to 456.6p.

UBS Global Wealth Management's chief investment officer Mark Haefele believes investors should be prepared for more bouts of volatility as inflation worries are likely to persist.

However, he added: “While we think price pressures may spike in the near term as pent-up demand meets constrained supply, we believe fears about a persistent rise in inflation are likely to prove overdone.”

The FAAMNG stocks, which also include Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX) and Google owner Alphabet (NASDAQ:GOOGL), rose 56% in 2020 and have gained 1.5% so far this year, but Haefele doesn't think the sector is in a bubble. He instead advises clients to reduce the concentration of risk in their portfolios and adds that they should use the bouts of volatility as a potential opportunity.

Domestic stocks back in favour

In the UK, the focus on domestic value was seen in the fact that the FTSE 100 index fell 0.4% whereas the FTSE 250 index was 0.3% higher. Big winners included easyJet, which hit its highest level since March after chief executive Johan Lundgren reported a huge surge in summer holiday bookings after the Prime Minister's announcement.

The potential re-opening of airports to holidaymakers from mid-May rekindled share prices in the same way they benefited from the Pfizer (NYSE:PFE) vaccine breakthrough in early November. Upper Crust caterer SSP, which almost doubled in value before Christmas, jumped 17% today as jitters eased over its need for another City fundraising.

The improved 2021 outlook helped WH Smith (LSE:SMWH) and Mecca Bingo firm Rank Group (LSE:RNK) to rise 8% and 7% respectively, while there was a much-needed boost for shopping centre owner Hammerson (LSE:HMSO), which climbed 4% or a penny to 22.63p.

Fevertree among leisure stocks given a boost

Along with a degree of clarity on re-opening plans, the likely extension of government support measures in Chancellor Rishi Sunak's Budget statement next week should help leisure stocks.

Prior to today's session, analysts at Liberum noted that stocks in its leisure coverage were still trading at 21% below pre-Covid levels. Their current top picks based on earnings recovery and growth potential are City Pub Group (LSE:CPC), Gym Group (LSE:GYM), Loungers (LSE:LGRS), The Restaurant Group (LSE:RTN) and Ten Entertainment Group (LSE:TEG).

The broker also sees Fevertree Drinks (LSE:FEVR) as a post-lockdown winner, having increased its price target on the AIM-traded stock from 2,570p to 2,740p. The shares were today 1% higher at 2,370p after benefiting in recent weeks from a reassuring trading update.    

Liberum analyst Wayne Brown said: “The strong off-trade share gains achieved over 2020 are reflective of the consumers’ desire to recreate premium long mixed drinks and cocktails at home, and should translate into more on-trade sales once lockdown ends.”

One of the biggest rises in AIM came from Arena Events Group (LSE:ARE) as investors eyed a potential summer surge in demand for the supplier of temporary structures at major sporting events.

Shares shot up 28% but London's junior market was down more than 1.5% overall, not helped by further weakness in some of its previously high flying Covid-19 testing stocks.

With the vaccination programme making rapid progress and hopes rising that all UK restrictions can be lifted by mid-June, Novacyt (LSE:NCYT) fell another 53p to 664p compared with 1,190p in January. Omega Diagnostics (LSE:ODX) also dropped 8% or 7.5p to 87p.

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