The pandemic is something that we’ve had to live with for a year-and-a-half now. Although I still have some hesitancy in talking about life post-pandemic, it does seem to be on the way. With 88.7% of the UK adult population now having had at least one jab, restrictions have been lifted. This should allow businesses to trade without issue in most sectors. So if I had £2,000 to invest right now, which post-pandemic stocks would I look to buy?
Finding relative value
One way I can look at things is buying stocks that have been negatively impacted by the pandemic. In the post-pandemic world, these companies should be able to return to trading as normal and return to profitability.
For example, take the large UK banks. Loan provisions and reduced customer spending meant that most banks reported losses in 2020. Yet H1 results for the likes of Lloyds Banking Group and Barclays that have been released in recent weeks were positive. The shift back to making profits should continue as we move out of the pandemic. Therefore these are two post-pandemic stocks that I’d look to buy now for future share price appreciation.
One risk with these banks is that with interest rates at extreme lows, the margin between the rate they borrow at and the rate they lends at is shrinking. This could be a drag on profitability unless rates increase in the coming years.
I would note on this that some stocks that have been hit by the pandemic aren’t appealing to me. Some listed stocks have taken on large amounts of debt to protect the balance sheet. With a low share price, I would stay away from these potential value traps even post-pandemic.
For example, I think that it could take years before the travel and tourism sector gets back to pre-pandemic levels. So I wouldn’t look to invest in this area right now, but rather look for more immediate opportunities.
Defensive stocks even post-pandemic
I’d also look to invest around half my £2,000 in defensive stocks, even post-pandemic. This is because there’s still a lot of uncertainty in the world. This can be seen from the Delta variant. Further, no one knows how the vaccines will pan out and how resilient they will be regarding immunity over time.
As a result, I think it’s wise to balance my value stock picks above with some defensive choices. For example, I’d consider buying utility stocks such as SSE and National Grid. Both companies should be resilient to any future downturn. This is because we all need gas, electric and water supplied to our homes and offices.
Even if these stocks slump again due to a post-pandemic variant (which is always possible), I’ll be happy to hold given the income payouts. Both shares currently offer me a dividend yield above 5%. This is attractive, being something that I can use to my advantage to pick up income along the way.
Overall, I’d look to split my £2,000 half into oversold stocks and half into defensive stocks. The post-pandemic outlook is still uncertain, but I feel this mix gives me the right balance.