According to Deloitte, the accounting giant, around half of the UK’s largest companies reckon their businesses won’t fully recover until the second half of 2021. So how does that affect the search for quality shares to buy right now?
I think it’s a good idea to separate the performance of businesses from the performance of their shares. Indeed, the stock market has always looked forwards. So shares will likely move ahead of underlying operations on the ground.
Why I’d look for quality shares to buy right now
Deloitte has just released the results of its quarterly CFO Survey. And the firm claims the survey is “firmly established” with media and policymakers as the “authoritative barometer” of UK corporates’ sentiment and strategies. The company goes on to say “it’s the only survey” of major corporate users of capital that gauges attitudes to valuations, risk, and financing.
Key findings this quarter suggest chief financial officers are not expecting a V-shaped recovery in their businesses. But I reckon it’s probably already too late for many businesses to recover as fast as they declined when Covid-19 struck. However, recoveries seem to be gaining traction in many sectors and that encourages me. Does it matter if the recovery is a little slower than the decline? I don’t think so.
Almost half the CFOs surveyed do not expect demand to return to pre-pandemic levels until next summer. And I reckon that’s great! Maybe it’s my inner optimist, but full recovery in demand just about a year from now sounds encouraging to me after such a sharp shock.
Of course, it’s important not to underestimate the cost increases businesses face because of a world featuring the coronavirus. And many may decide to postpone investing for growth. But my guess is the stock market’s buoyancy since the crash in the spring may prove to have been justified.
Indeed, businesses are coming back. They may not be springing up in a V-shape, but a tick-shaped recovery with a long tail sounds likely to me. And that’s a good basis for investing in quality shares now to hold for the long haul.
Why I reckon the general outlook is good
The coronavirus pandemic is evolving to look more and more like a temporary set back to otherwise healthy economies. Things weren’t perfect before Covid-19 arrived. But economies weren’t broken either in the way they were when the credit crunch and the Great Recession arrived just over a decade ago.
And I’m optimistic about the way the UK government is aiming to stimulate recovery in the general economy. Unlike the austerity years following the credit-crunch event of the noughties, this time the government appears to be trying to spend the UK out of trouble. And such an approach – based on Keynesian economic theory – could benefit many sectors.
For example, I like the look of the housebuilding and infrastructure sectors. And there are ongoing opportunities in IT, healthcare, and many other sectors. Indeed, if you focus on high-quality underlying businesses and a long investment holding period, there are some tempting stocks out there right now.