Increasing production

Jubilee Metals (LSE:JLP) is the first business that catches my eye. At the time of writing, the shares are trading at 13.3p. 

For the six months to 30 June, the AIM 100 metals recovery firm reported that it had invested £58m into expanding its operations in the recovery of platinum group metals (PGMs), copper, and cobalt.

These metals are in long-term high demand, given their importance to decarbonisation projects, like electric vehicles (EVs).

There are also new operations in South Africa that could increase annual output by 44,000 PGM ounces per year. This is an exciting development for the rapidly growing company.

Over the first half of the year, Jubilee Metals saw a 5% increase in PGM production, despite a number of interruptions and stoppages. There was also a 14% increase in copper production for the firm.

However, there’s a risk that military action could threaten the firm’s operations. It’s based in several countries in Africa that have volatile political systems.

On the flip side, it has a cash balance of £18.69m and total debt of £11.17m. To that end, I feel that the company could survive any near-term threats to its operations. 

An airline recovery?

Next, Jet2 (LSE:JET2) grabs my attention with its share price currently at 903p. 

The short-haul airline was battered during the pandemic because international flying ground to a halt.

For the years ended March, in 2021 and 2022, the business reported widening pre-tax losses of £370m and £388m.

At the current time, the climate of fewer international restrictions and a slightly lower oil price are both helping the company recover from the battering of the past couple of years.

But there remains the threat of further pandemic variants. These could cause more disruption to international travel, even if it’s not as extreme as it was during lockdowns.

Despite this, summer on-sale seat capacity was 14% higher in 2022 compared to pre-pandemic levels.

In addition, the AIM 100 constituent has operating cash flow of £653m. This means that it’s should be able to withstand any further disruption to its operations. 

Also, its total cash balance of £1.94bn far exceeds its total debt of £1.37bn. This strong balance sheet is another reason why I’m attracted to this growth stock.

Overall, these two companies may provide good scope to grow my initial investments. Given their higher-risk nature, however, I think a good approach for me is to buy the shares gradually. As such, I’ll put £200 aside every month for investment in these two businesses and will add them soon.

The stock has further lagged this year as ongoing inflationary pressures have coupled with turmoil at airports to push down its price. So, does this fall mean I should be buying Jet2 shares?

The results

Earlier this week saw the release of its results for the year ending 31 March. There were a few positives to take away, such as the 211% jump in revenue year-on-year. Total passenger numbers also increased to just short of 5m, compared to just 1.32m last year. Meanwhile operating losses were also cut by 4%.

However, investors were largely drawn to the comments made by Jet2 boss Philip Meeson. Within the release, Meeson hit out at “woefully ill-prepared and poorly resourced” airports and suppliers, as delays and cancellations continue to plague the firm’s operations.  

Covid restrictions seen earlier this year further impacted Jet2. As a result, the group reported losses of £388.8m for the period, up 5%. Thursday saw the share price fall over 10%.

Wider factors

My main concern with Jet2 is the troubles we’re seeing at hubs across the UK. The company scrapped further flight routes last month as issues such as staff shortages have placed immense pressure on the firm. Looking forward, Meeson stated how performance this year “very much depends on how quickly the broader aviation sector returns to some level of stability.” Jet2 is not alone in its struggles, as this week saw British Airways cancel a further 10,300 flights – 15% of its schedule – for this summer.

To add to this, inflation woes are also dampening the outlook for the travel sector. With rates reaching 9.1% for the UK in May, the months ahead may see consumers tighten their belts as they cut back on unnecessary spending. Earlier this year CEO Steve Heapy warned of increasing prices next summer. These two factors combined could see Jet2 suffer.

Rising fuel costs could also be an issue. the firm has done well to hedge the majority of its fuel for 2022. However, if prices continue to rise into next year, this could eat away at the firm’s bottom line.

Despite this, the business anticipates high demand in the future. And as a result, it has entered into an agreement with Airbus for up to 75 A321 neo aircraft, 60 of which are now confirmed orders. This shows Jet2 is clearly planning for the long run and has full confidence in its operations for the times ahead.

Would I buy?

It’s true that Jet2’s results showed some positive signs. But Meeson’s comments hint at the difficult period the business is set to face. I think the company will struggle to navigate the months ahead. And with inflation seemingly not slowing down, along with ongoing airport troubles, Jet2 shares will most likely take a hit. I won’t be buying any shares today.

What are airline shares?

Airline shares are publicly tradable financial instruments of aviation companies listed on a stock market.

Buying shares in an airline gives an investor part-ownership of a business that operates regular services for carrying passengers or goods by plane. If the business grows its profits over time, the company becomes more valuable. And, all else being equal, the value of its shares will also increase. In addition, companies may pay cash dividends to their shareholders.

Aviation companies come in different shapes and sizes, so comparing individual stocks isn’t always straightforward.

Traditional full-service airlines (also known as legacy airlines) typically offer checked baggage, meals, drinks, in-flight entertainment, pillows and other comforts in the ticket price. They often have long histories and are flag carriers for their countries.

Low-cost airlines (also known as budget or no-frills airlines) generally offer little beyond a seat in the ticket price, with any extras having to be paid for. They typically operate over shorter routes.

Differences have become somewhat blurred over the years. Full-service airlines now often charge for some of the extras. Meanwhile, low-cost airlines operate on a spectrum that could be said to extend from lower-cost to ultra-low-cost.

While no airline business model is inherently superior, an appreciation of the differences can help an investor understand the variations in some of the key metrics in the industry, such as revenue per seat and cost per seat.

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Top LSE aviation stocks

Here are the top four aviation stocks on the London Stock Exchange:

International Consolidated Airlines

British Airways was floated on the stock market in 1987 as part of the spate of privatisations of state-owned businesses by the Conservative government of the era. International Consolidated Airlines (IAG) was formed by the merger of British Airways and Spanish flag carrier Iberia in 2011. The group subsequently added Irish airline Aer Lingus to its portfolio.

In addition to these legacy airlines, IAG owns low-cost European short-haul brand vueling and low-cost long-haul brand LEVEL. In the year prior to the Covid-19 pandemic, the group carried a total of 118m passengers. It has further diversification in the shape of its IAG Cargo division, which operates an extensive airfreight network. This serves over 10,000 businesses.

IAG is the biggest airline stock on the London market. The group is also the most diversified with its multiple passenger brands and air freight operations.

Key Metrics:

• Market Cap: £7bn (as of 26 April 2022)
• Average Daily Volume: 34.5m
• HQ: London, UK

easyJet

easyJet was founded in 1995 and was floated on the London Stock Exchange in 2000. It’s a pan-European low-cost airline that’s built a strong position at many leading airports, with high customer demand. Indeed, it’s the number one or two operator in those primary airports it’s targeted. Its main competitors at such airports are the legacy airlines and charter carriers. It doesn’t need an ultra-low-cost model to compete successfully against these operators.

In the year prior to the pandemic, easyJet carried 96m passengers. That year it also launched package holiday brand easyJet Holidays. Over 80% of its customers travel for leisure. By offering holiday packages, it encourages those customers to spend more with easyJet, rather than book accommodation elsewhere.

Key Metrics:

• Market Cap: £4.2bn (as of 26 April 2022)
• Average Daily Volume: 7m
• HQ: Luton, UK

Wizz Air

Ultra-low-cost airline stock Wizz Air was founded in Hungary in 2003. By the time of its London flotation in 2015, it had grown to be Central and Eastern Europe’s largest low-cost airline. It has since continued to expand its network of European destinations. It also has some medium-haul destinations in the Middle East and North Africa. In the year prior to the pandemic, Wizz carried 40m passengers.

The company has largely shunned expensive, slot-constrained airports, enabling it to focus on stripped-down ticket prices. It’s also shunned merger-and-acquisition activity in favour of organic growth. Having said that, management’s stated it hasn’t ruled out acquisitions should a compelling deal emerge. In fact, it was rumoured to be the mystery bidder behind a spurned approach for easyJet in 2021.

Key Metrics:

• Market Cap: £3.2bn (as of 26 April 2022)
• Average Daily Volume: 0.8m
• HQ: Budapest, Hungary

Jet2

The origins of Jet2 origins go back to a company founded in 1971 to fly flowers from Guernsey to the United Kingdom. Its freight operations subsequently expanded considerably and it was floated on the UK Unlisted Securities Market in 1988. Three years later, it moved to London’s main market, with the name Dart Group.

In 2002, the group launched a low-cost passenger airline, branded Jet2.com. And in 2007, it added a package holiday brand, Jet2holidays. Ultimately, it divested its other operations to focus on these two businesses, changing its name to Jet2 in 2020. In the year prior to the pandemic, the company flew a total of 15m flight-only and package holiday single sector passengers.

Key Metrics:

• Market Cap: £2.8bn (as of 26 April 2022)
• Average Daily Volume: 0.8m
• HQ: Leeds, UK

Investing in foreign airline stocks

Most UK investors will be familiar with no-frills airline Ryanair. The company dropped its London listing last year, but its shares can still be bought on its primary listing exchange, Euronext Dublin.

Of course, there are other foreign airline shares investors may want to consider, such as the four big US players:

• American Airlines
• Delta Air Lines
• Southwest Airlines
• United Airlines

Are airline stocks right for you?

After almost getting stung by a foray into airlines in 1989, legendary investor Warren Buffett bemoaned the economics of the industry. He reckoned the airline industry as a whole had made a cumulative loss in the 100 years since the days of the Wright Brothers.

Yet, in 2016, he made a further foray into airlines, building substantial positions in the four largest US carriers. He would soon regret it. When the pandemic struck, he sold all his airline shares, booking a hefty loss.

Pandemics aside, investing in aviation stocks can be something of a minefield. They’re highly sensitive to macroeconomic gloominess and economic downturns. Businesses cut back on travel expenses and leisure travellers go on fewer holidays during recessions.

And there are other potential pitfalls, more specific to the airline industry. Airlines have big fixed and operating costs. Ongoing purchasing, or leasing, of new aircraft is expensive, and management errors on long-term fleet decisions can be costly.

Fuel and labour are other major expenses that airlines have to manage carefully. Ineffective fuel hedging and negotiating with a quite widely unionised workforce can hurt business performance.

As such, as well as in periods of recession, airlines may struggle to grow profits when fuel and labour costs are rising. High levels of debt at the wrong time may pose additional challenges.

Having said all that, there are times when investing in aviation shares can be very rewarding. When the economy is thriving or fuel or labour costs are depressed, airlines can deliver substantial profits for shareholders.

As the sector is not only one that’s highly geared to the wider economy, but also one that has some distinct financial and operational challenges at other times, anyone looking at investing in airline stocks need to go carefully. A relatively high appetite for risk and a strong stomach for turbulence will help before check-in.

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• For the six months to 30 September 2021, revenue increased by 43% year on year
• Although seating capacity increased 86%, the load factor fell
• Jet2 has a lower forward P/E ratio than both easyJet and Wizz Air

With strong indications that the worst of the Covid-19 pandemic is behind us, I’m looking to buy shares in travel firms. One such company is Jet2 (LSE:JET2), an operator of flights and package holidays to destinations like the Mediterranean and the Canary Islands. Although recent results have been mixed, I think I would be getting a bargain at the current share price. Should I add this stock to my long-term portfolio? Let’s take a closer look.

Recent results 

Interim results for the six months to 30 September 2021 showed that revenue was up 43%. It increased from £300m to £429m year on year. Furthermore, the company’s cash balance stood at £1.5bn. This is a significant gain from the same period in 2020, when it was just £650m.

On the other hand, the business posted an operating loss after tax of £163m, greater than the 2020 interim loss of £68.7m. 

While seating capacity increased 86% to 2.68m, the load factor declined to 57.3%. During the same period in 2020, the load factor was 69%. What this tells me is that the firm is flying more aircraft, but the number of passengers per flight is lower. This combination may have a negative impact on the Jet2 share price.

The company stated that the fall in passengers was down to the UK government’s traffic light system for international travel. In addition, it barely operated between April and June 2021.

Why I think the Jet2 share price is cheap

The firm has a forward price-to-earnings (P/E) ratio of 11.85. On its own, this figure doesn’t mean that much. When compared with competitors, however, it may indicate if the company is over- or undervalued. easyJet has a forward P/E ratio of 142.86 and Wizz Air is 21.14. Both of these airlines are rivals within the short-haul European market. This strongly suggests that the Jet2 share price is a bargain at current levels. It is currently trading at 943p.

It is worth noting, however, that any future pandemic variant could halt the recovery of international travel. What’s more, rising oil prices will likely translate into higher jet fuel costs. This may eat into the company’s future results.

Conversely, some countries, like Norway, have started reopening their borders and removing all pandemic restrictions. While this relaxation is still yet to fully affect Jet2’s destinations, I think this may only be a matter of time. This could be good news for the share price.

Although the company’s results are mixed, the shares do seem to be cheap at current levels. While I won’t be buying shares today, I won’t rule out a purchase in the future when I can better understand whether more European countries are dropping entry restrictions.  

I’m a long-time admirer of this package holiday and airline group. My experience as a customer has also been good. Are the shares still a good buy after last year’s stonking recovery? I’ve been taking a closer look.

A market-beating flyer

Covid-19 grounded most of Jet2’s aircraft and forced executive chairman Philip Meeson to raise fresh cash from shareholders. But despite this tough period, Jet2’s share price has risen by 140% over the last five years.

£1,000 invested in Jet2 in January 2017 would be worth around £2,550 today, including dividends. By comparison, the same investment in easyJet would now be worth about £925.

What makes Jet2 different is that the pandemic does not seem to have upset the group’s growth plans. After two years of losses, broker forecasts suggest Jet2 will return to normal trading by this summer. Analysts’ estimates suggest that profits for the 2022/23 financial year could rise to £241m. That’s double the group’s 2019/20 profit of £116m.

At the current share price, these numbers value Jet2 at 11 times next year’s forecast earnings. This modest valuation might normally attract me to a potential investment. But in this case, I’m not sure — for two reasons.

The smart money is selling Jet2 shares

Meeson sold almost £24m of stock in July 2021. In November, he collected another £22m from share sales. Although the Jet2 founder still has a 20% (£535m) stake in the group, these sales suggest to me that Meeson thinks the business is fairly valued at current levels. Given his inside knowledge of Jet2, I take this seriously.

While I expect this business to perform well over the coming year, I can see several potential risks. High fuel costs and tough competition for holiday makers could put profit margins under pressure. There’s also the possibility of further Covid disruption.

Looking further ahead, Jet2 has recently made several large aircraft orders. These will require funding over the next few years. Analysts expect capital spending to increase sharply over the next 18 months.

In my view, Jet2 shares are already fully priced for a return to normal. Although I expect this business to continue growing over the medium term, I’m going to wait for an opportunity to buy the shares more cheaply.

What I’m buying

I reckon there are better investment opportunities away from the regular airline sector. One stock I’ve been buying is small-cap Air Partner (LSE: AIR). This £55m company provides a range of air travel services, mostly related to aircraft chartering.

Business has been good during the pandemic, thanks to higher levels of air freight, including vaccines. The company has also benefited from strong demand for private jet travel from corporate clients and wealthy individuals.

Air Partner’s management admits the cargo boost from Covid-19 is likely to end at some point. Broker forecasts suggest earnings could fall by as much as 20% this year.

As a long-term investor, I’m not too concerned. I think Air Partner’s diverse mix of services should support future growth and profitability. With the stock trading on less than nine times forecast earnings, I recently added more shares to my portfolio.

Since the new variant was discovered, shares in some of the UK’s premier travel companies have fallen by a double-digit percentage. IAG has fallen 20% over the past month, easyJet‘s shares have fallen 15%, and Jet2 has slumped 21%. 

However, I think some companies in the industry are better positioned to whether the uncertainty than others. As such, following recent declines, I have been looking for undervalued opportunities in the travel sector. 

Travel stocks to buy

Further restrictions will have a clear impact on the travel industry as a whole, but some businesses will feel the pain more than others. IAG, TUI and easyJet could all suffer more than their peers, due to their leveraged balance sheets and lack of competitive advantages. 

By comparison, companies like Wizz (LSE: WIZZ) and Jet2 (LSE: JET2) have stronger balance sheets and more visibility among consumers. 

Wizz, in particular, stands out to me. I like this airline because it has a cash-rich balance sheet and a relatively modern fleet of aircraft. The modern fleet means costs are lower and it can accommodate more passengers. These are the reasons why I would buy the company, but avoid peers IAG and easyJet. 

Jet2 reported a substantial loss of £200m for the six months to the end of September. This was disappointing, but the company has a strong balance sheet, which can absorb losses. Excluding customer deposits, the group’s cash balance at the end of September was £1.5bn. 

These numbers suggest to me that the company has the cash resources required to weather the current storm. The resources will also provide firepower for the group to capitalise on the market recovery when it eventually starts to take shape. 

Growth potential 

This is the primary reason why I would buy the stock over its competitors. Compared to other companies in the sector, like TUI, Jet2 already has a lot of brand value, and it can use its cash balance to boost its visibility to consumers. TUI’s financial position is much weaker. It has been bailed out three times during the crisis by the German government, and further restrictions could lead to yet another cash call. 

Like Wizz, Jet2 also has the resources to buy and build a new fleet of aircraft to lower costs and offer a better level of service to consumers. In October, the company announced it had entered into agreements to acquire 51 planes. Wizz is also buying new planes, showing that the business is already looking forward to better times.

Despite their attractive qualities, I am conscious that both Jet2 and Wizz cannot survive if restrictions continue forever. If constraints do continue for the next couple of years, even these companies may start to struggle. This is the biggest challenge they face today. 

Despite this risk, I would buy both of these travel stocks from my portfolio today.

Indeed, TUI has far more diversification across its different business lines. After several bailouts by the German government, it also has a stronger balance sheet. 

However, Jet2 has several attractive qualities as well. 

The outlook for TUI shares 

TUI is a travel and tourism giant. It owns cruise ships, hotels, planes, and everything in between. This gives the company an edge over smaller competitors who may rent this equipment from third parties at higher prices. 

Unfortunately, this diversification didn’t help the company in the pandemic. It suffered almost as much as any other business and had to be bailed out three times. 

But the company is now on the road to recovery. According to its latest trading update, 876k customers travelled with the group in the quarter to the end of June. That’s compared to 159k in 2020. The report also noted that a total of 4.2m customers were booked to travel with TUI in the 2021 summer season. 

While these developments are positive, there’s a cloud hanging over TUI shares. The company has elevated debt levels, and its bailouts came with strict rules. In particular, they banned bonuses and dividends. This implies investors won’t see any income from the stock anytime soon. 

Are Jet2 shares the better buy? 

Jet2’s operations are far smaller than those of TUI. The airline and travel business flew 15m people in the financial year ending 31 March 2020 and took nearly 4m people on holiday. TUI took 20m+ customers on holiday every year before the pandemic. 

Still, I think Jet2 shares look more attractive than TUI shares. There are a couple of reasons why I hold this view. First of all, the group, which operates the UK’s third-largest airline by the number of passengers flown, has a strong balance sheet. At the end of its financial year, the company had £1.4bn of cash after raising money from investors. 

It’s also more flexible. TUI’s sprawling international operations provide diversification and more customer choice, but they also cost more to maintain. The company can’t just stop spending on these assets overnight. 

By comparison, Jet2 can restructure its airline operations to serve the routes with the highest level of demand. This is a strategy it’s pursued exceptionally well in the past. 

Nevertheless, there’s no guarantee this will continue. TUI’s diversification may serve the company better in the recovery. Jet2 may continue to struggle if demand for air travel remains sluggish. 

Despite these risks, I’d buy Jet2 shares for my portfolio over TUI shares. I think the former has more flexibility and a stronger balance sheet, while the latter may struggle with its sprawling operations and government restrictions.

Something similar has happened with the easyJet and TUI share prices. They both peaked around the same time, and have both since fallen back. Do these ups and downs give me a buying opportunity?

That volatility could be a double-edged sword. While it’s nice to buy shares during dips, airlines in particular can be very susceptible to longer-term economic cycles. In particular, they have little control over costs, including fuel. And oil is back up around $75 per barrel. So that must surely be contributing to the recent share price weakness affecting all three.

Jet2 share price support

The spread of the Covid delta variant can’t be helping. But I think it’s a mistake to look only at month-by-month progress. What happens over the next few years is far more important. And right now, for the Jet2 share price and others in the sector, I’d say it’s all about liquidity.

Jet2 ended the year to March 2021 with a loss from continuing operations of £373.8m. But through a combination of debt, equity, and other activities, the company enhanced its liquidity by an extra £1bn. As recently as 4 July, the airline had a cash position of £1.908bn. It includes an ‘own cash’ position (which excludes advance customer deposits) of £1.46bn. That’s even after $1.4bn in customer refunds, and it looks comfortable enough to me.

Competition is tough

But even if Jet2 is on the way back, there’s one thing that worries me a little. It’s easyJet, which is a more established and better known airline. It does raise the question of whether brand really matters in the airline business. Generally, I don’t think it matters a lot. But in the very competitive business of short-haul budget airlines, any slim advantage could make a difference.

But TUI is perhaps more challenged. Alone of the three, it’s still in negative territory over 12 months, while the others have made it some way back up. And over two years, TUI shares are down 53%. That compares with a 42% gain for the Jet2 share price, with easyJet down 5%.

Government bailout

But there’s one thing that should help limit the future downside for TUI, the German government. Berlin has provided the company with several bailouts during the pandemic. And hopefully that should be enough to see it back to profitable days again.

Might Jet2 soar? I really do think that, together with easyJet and TUI, it could end the year higher. But I’m sticking with my well-tested rule to keep away from airlines. And there’s too much uncertainty in the holiday business in general for me.

easyJet share price: ready to fly?

There are certainly arguments for thinking the recent positive momentum in the easyJet share price will continue. After being confined to their homes for so long, I don’t think anyone can deny that demand for foreign travel and holidays from families and budget travellers is there. 

There’s also a sense that UK investors think the worst is over. Interestingly, easyJet shares were the fourth most popular buy on share-dealing platform Hargreaves Lansdown last week. The fact that industry peer International Consolidated Airlines and jet engine-maker Rolls Royce also featured is another bullish indicator (although both featured on the list of most popular sells too).  

Even so, I don’t think it’s a screaming buy. Naturally, the FTSE 250 stock’s balance sheet isn’t quite what it used to be with the company now carrying a significant amount of debt. In addition to this, easyJet will still face significant competition for passengers in what remains a cutthroat industry.

There are other, more general risks to consider. A big rise in the number of infections from the Delta variant could slow short-term demand for travel even when restrictions are lifted. Indeed, the World Health Organisation has already warned other countries not to lift Covid-19 restrictions too quickly. A higher oil price isn’t great news for airlines either.

An even stronger company?

My caution over easyJet could also be applied to package holiday firm and airline Jet2 (LSE: JET2).

Like easyJet, restrictions on travel meant Jet2’s planes were out of the sky for over half the year. Even when permitted, a “significantly reduced” number of flights took to the skies. Passenger numbers fell by 91% to 1.32 million, forcing the company to report a pre-tax and foreign exchange revaluation loss of just under £374m today.

Thankfully, this looks like being a temporary blip. Bookings for next summer have been “encouraging” and a “materially higher” proportion of these are for (higher-margin) package holidays, the company said. 

Jet2 believes it will “emerge from this crisis an even stronger company”. Is it a better buy though? I’m on the fence. Its finances look decent. Having slashed costs and propped up its balance sheet via loans, the firm has just over £1.9bn in cash. On the flip side, easyJet’s status as one of the largest airlines in the (pre-pandemic) world arguably gives it more clout. Its brand is likely to be far more familiar to travellers as well.

Cautious buy

I think there’s a good chance the easyJet share price will be higher in 2022. The same goes for Jet2. As such, I think both could be cautious buys for my portfolio. That said, I would always check that I’m sufficiently diversified elsewhere first. I’d also need to be willing to hold if things don’t go to plan. As Jet2 commented today, it still has limited visibility on performance in the current financial year.

Notwithstanding this, I think I’ve found an even better opportunity for myself elsewhere in the travel space. 

This all bodes well for a reopening of the economy, in my opinion. And what’s the first thing many people would like to do post-lockdown? I reckon social activities, holidays and parties will be high on to-do lists later this year.

What does this mean for UK shares?

Shares prices tend to look forward several months to anticipate future supply and demand. So I think it’s important for me not to wait until an economic recovery is fully underway. I’m encouraged with recent progress and am considering several UK shares that could benefit from an economic bounce-back.

The first thing I want to do is go on holiday, as do many others. I’m convinced there will be pent-up demand for holidays this year. The UK shares that I’ve been buying throughout the crisis include Jet2 (LSE: JET2).

Jet2 is a package holiday provider that was popular pre-pandemic. Before the crisis hit, its business was growing and the brand was becoming stronger. The crisis also removed some of its competition, leaving Jet2 in a potentially stronger market position.

That said, I know the share comes with risks. They include the possibility of new variants of the virus potentially delaying economic recovery. Also, even if much of the UK population is able to travel, some countries may not be in a position to receive visitors. 

Celebrate with cake

Another recovery idea from my top UK shares watchlist is based on my expectation of more parties and social gatherings in the second half of 2021 and beyond. With restrictions in place for 12 months, birthdays, anniversaries, and other celebrations have been cancelled or postponed.

I anticipate celebration cakes could be popular once gatherings are permitted again. One company that comes to mind that specialises in this area is Cake Box Holdings (LSE: CBOX). This franchise cake shop retailer is a well-run operation, in my opinion.

I like that it has excellent quality metrics. For instance, highlights include a return on capital of over 30%, earnings growth of 31%, and operating margin of 20%. It even provides a 3% dividend.

I like that the CEO owns over 30% of the company. But the shares can be a bit illiquid, which can make larger purchases and sales more difficult. A potential risk is whether management is able to find enough suitable locations for new outlets. Additionally, similar offerings and increased competition from supermarkets could be an issue.

But overall, I reckon the future looks promising for Cake Box and I’d be happy to have a taste by buying a small portion of shares.