I believe now is a good time to invest in Whitbread shares – and why is that? There are literally a billion reasons.
You might be pleased to know that I am not going to go through the billion reasons to invest in Whitbread (LSE:WTB) shares one by one — instead, I will sum them all up in three words: one billion pounds.
Before Covid-19, Whitbread had a strong balance sheet what with the sale of Costa. Now it has raised another billion pounds, meaning its bank balance is bulging.
I think the strength of the Whitbread balance sheet represents an outstanding opportunity. The reason is simple — it’s a great time to be cash-rich. Bargains will be plenty.
Post-Covid-19
No one knows what the economy will look like post-Covid-19. As for property prices — predicting how they will move is a mug’s game — but there is one area where I do expect to see bargains, and that is in commercial real estate.
It is a sad inevitability that pubs will go out of business. Hotels will probably either be sold or put up for sale. As a result, prices will fall.
But isn’t this how the economic cycle works? Any sector, whether it be oil, retail, or the hotel and pubs sectors that Whitbread operates in, follows a similar pattern. In a downturn, prices fall, they eventually become so cheap that demand rises pushing prices up, until they become too high, and another downturn begins.
Those that have sufficient cash, and foresight to invest at times when the downturn is especially severe, can play the cycle to their advantage.
That is why I like Whitbread shares.
Whitbread shares long term
Whitbread has been a good long-term play for years.
If you had invested in the company back in the mid-1990s, when it was first listed on the stock market, then your shares would have increased by almost nine-fold at the beginning of this year. Factor in that the company usually pays reasonable dividends and you can see that Whitbread shares have been good long-term performers.
Okay, shares have fallen this year. They are down by almost half, but even after this massive drop they have still doubled over the last decade and more than quadrupled since 1995.
But this year’s fall in the Whitbread share price does make it look especially tempting.
Solid performance, unique opportunity
It is the combination of Whitbread’s steady performance in the long term and what I see as a unique opportunity that makes the company such as a compelling investment.
I expect it to grab market share such that when the economic recovery finally begins in earnest, Whitbread will be well placed indeed.
That is why I think now represents such a great opportunity to invest in Whitbread shares.