The stock market rally is proof that we as investors are euphoric about the Covid-19 vaccine. After months of distress, there’s finally a ray of light. We may not be at the end of the pandemic, but at least we appear to be at the beginning of the end.
Preparing for uncertainty
Pandemic-hit UK shares have been some of the fastest risers in the current stock market rally. The bull in me reckons that they could even double my money invested today by next year.
The more cautious part of me, however, thinks that it’s also important to account for all the uncertainty in the air. 2021 may not be a smooth ride for the stock markets, much as we’d like the rally to continue endlessly. I reckon that Brexit, the possibility of sluggish economic growth and the fragile financial health of many companies could pose challenges.
In line with this, it’s a good idea to be realistic about the gains possible across stock markets. So I’m considering a longer time-frame of five years. I reckon that by 2025 it’s quite likely that some will double my money. In terms of simple averaging, it implies 20% growth every year, which is a decent rate by any standards.
My focus is on high-growth industries, though it’s by no means an exhaustive list. Two categories, in particular, appeal to me. These are as follows:
#1. UK shares and the online marketplace boom
Technology-driven apps that make our lives simpler are clear winners. Consider e-grocers like Ocado, real estate e-marketplace Rightmove, or even the food delivery app Just Eat Takeaway.
If there was any doubt that the world was getting increasingly digital, I think 2020 has put it to rest. Even with some slowing down in their revenue growth as the UK opens up, I think over time they will gain.
Going digital also means that we’ll have far more deliveries at our doorstep than before. I think by now most of us have experienced the ease of Amazon shopping and even the vast array of stuff that can be bought online. I certainly have.
This is set to increase demand for the packaging industry. And it so happens that not one but three FTSE 100 companies provide exactly these products. Stocks like Smurfit Kappa, Mondi, and DS Smith are ones to look out for.
#2. Clean energy gets a push
Clean energy is another industry that’s set to make rapid strides in the next decade. The Scottish Mortgage Investment Trust, with big holdings in Tesla, is one UK share with a stake in clean energy. Industries associated with electric vehicles will also benefit.
These include stocks like speciality chemical manufacturer Johnson Matthey, which is a component supplier for electric vehicle (EV) cells and Rio Tinto, which produces lithium, also a component in EV cells.
A third one is the FTSE 100 miner Anglo American, which is now producing an electric mining truck, making it yet another reason to like the stock.