I’ve made a list of shares to watch for my portfolio in May. Here I share three broad themes from it, and some shares I’ll be keeping an eye on.
Reopening shares to watch
The UK has substantially reopened in recent weeks. Restrictions are set to continue easing. With warmer weather and more venues trading, I am looking for possible upside in reopening shares.
As an example, consider J D Wetherspoon. Its shares are already up 42% over the past year. Apparently a lot of investors have already factored in the potential business benefits of pubs reopening.
But markets are not always rational. I expect the sight of crowds of drinkers enjoying a beverage in the sunshine will lead investors to reconsider Wetherspoon. Even if its shares have already rallied strongly, there may be further upside.
That does underline a risk, though, which is that any further lockdowns could damage revenues and profits.
Similarly, shares for me to watch in May include Cineworld. With many US cinemas already open and UK cinemas due to open in May, the company’s slumped revenue will hopefully start to recover. Like Wetherspoons, investors have already priced in recovery in my opinion, as the shares are up 48% over the past year.
The company’s debt-heavy balance sheet remains a key risk that could hurt profits even if revenues surge.
Banking resurgence
This week saw very upbeat first quarter updates from banks including Barclays, Lloyds, and Natwest.
There has been an expectation of a banking recovery in some quarters for a while. That helps explain why the sector has performed well lately. For example, Barclays is up 22% this year and 66% over the past 12 months.
But I think there could be further upside in May as recent results are digested in detail. That’s why banks are among my shares to watch in May.
Consider Natwest for example. It has already doubled from its low point over the past year. But it still trades on a price-to-earnings ratio of less than eight using its pre-pandemic earnings. While it has some way to go to show a full earnings recovery, I expect it to benefit from a broad economic recovery. Additionally, as the government continues to sell shares back to the bank some of which are then cancelled, the earnings per share are likely to increase in coming years even if total earnings are static.
Banks are exposed to the economic cycle. So a risk for all UK banking shares is that any economic downturn or double dip recession could hurt their revenues and profits.
Digital growth
This Tuesday I’ll be looking out for the first quarter earnings report from digital agency S4 Capital.
I’ve been excited about the company’s growing collection of digital marketing assets. This has led to impressive growth. Preliminary results for 2020 showed like for like revenue growth of 15.2% and an even more impressive 19.4% profit uptick on the same basis. With the company’s acquisitive appetite, total revenues and profits grew even faster.
I hope these shares to watch can keep up the pace. I will find out on Tuesday how they have started 2021. Less than 5% off their all time high, the shares look priced for success. That is a risk if results disappoint, for example because of the challenge of integrating diverse agencies very fast.