Dips, Ships and Trips: My UK Portfolio Post-Covid


James Morton has been investing for years through his ISA holdings. He mainly invests in funds, and performance has been reasonable, but he’s been looking for more growth opportunities in a bid to increase his overall returns from him.

James, who works as an IT analyst, says he saw an opportunity to invest when share prices fell significantly in March 2020.

“I have been reading about investments over the last few years. Obviously some people can make a lot of money by backing very successful companies in the early days. But as someone who is not particularly involved in either company start ups, or investments, these opportunities are difficult to find,” he says.

“Stock market falls can be good investment opportunities if you can hold your nerve and buy when other people seem to be selling. Of course, the challenge is picking the stocks that will recover over the longer term.”

Pharma in Fine Form

James does not describe himself as a “natural” stock picker, so he has opted to diversify by investing in a wide range of companies. “One of the things I’ve learned over the years is not to put all your eggs in one basket,” he says.

He says he focused on some sectors that had been particularly badly hit by Covid-19, including firms in the travel and leisure industries. These include airlines, cruise operators and hotel chains. He has also invested in pharmaceuticals, IT and computing and defense and engineering.

Not all have recovered, but he points out he has only held the shares for a relatively short period of time. “I am not trying to make a quick turnaround on these shares, like some day traders do,” he says.

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One of his better holdings has been the pharmaceutical giant GlaxoSmithKline (GSK), whose share price dipped sharply in March 2020. After an initial recovery, it continued to tick downwards during 2020, reaching a low that was significantly worse then the initial drop.

Since then, however, it has started to rebound, and is now significantly higher than the price James bought in at, and not far off its 2020 peak prior to the Covid-19 crash, at 1,715p (price correct as of 19 May) .

Morningstar analysts give the share a four star rating, pointing out that it is still below its “fair value estimate” of 2,050p. As one of the largest pharma companies, it has an innovative new product lineup, and an expansive list of patent-protected drugs. Both mean the company has a wide economic moat, protecting it from competitor offerings. It’s also a reliable dividend payer, and currently yields 4.48%, according to Morningstar data.

Portfolio Turbulence

James has also invested in FTSE-listed Games Workshop (GAW). While the Warhammer inventor carries out its manufacturing activity in the UK, it sells its products globally.

Shares in Games Workshop have increased significantly since early 2017, with a strong growth trajectory over 2018 and 2019. After the market turmoil in early 2020, this increase continued, until shares hit a peak of 11,780p in August 2021.

Since then there has been a decline, with company shares now trading at around 7100p. The shares currently yield around 2.76%. Over five years, shareholders have seen total annualized returns of 52.63%. However year-on-year shareholders are looking at an annualized loss of 31.5%.

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James says he is still in positive territory with this shareholding. Less successful, to date at least, has been his investments in the travel sector. He has small holdings in Consolidate Airlines Group (IAG), whose share price plummeted during the pandemic and is yet to recover in any meaningful sense.

According to Morningstar data, shares are now below the level seen at the end of March 2020, in the immediate stock market crash. Year-on-year investors are looking at total losses of 34.46% — with shareholders also looking at losses on both a three-year and five-year timeframe.

However, despite this, Morningstar analysts say the company has the potential to deliver better returns in the future. It has a Five-Star rating, reflecting the fact it is trading significantly below its “fair value estimate.”

Our analysts also note that the group is the highest quality of the European legacy airlines, achieving industry-leading margins and returns on invested capital due to its focus on fleet efficiencies and cost containment. The group entered the coronavirus pandemic in better financial health than its peers, allowing it the flexibility to better navigate the crisis.

“We believe the group can utilize the downturn to extract further cost efficiencies, driving EBIT growth of 3.5% per year to 2026 from 2019 pre-coronavirus levels,” they say.

Steady Hand

It is a similar picture with James’ investment in Carnival (CCL), one of the largest operators in the cruise ship industry. Again, this has a Five-Star rating, reflecting the fact that shares remain well below pre-Covid-19 levels. although there has been a modest recovery since.

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Morningstar points out this is a company with high uncertainty around its share price and no economic moat. It also says the decline of travel has the potential to spark longer-term “secular shifts” in consumer behaviour, challenging the economic performance of already-vulnerable companies.

James says he was expecting share prices to pick up sooner, but feels it remains a good long-term play.

“Many of my parents friends were keen on going on cruises, and would pay quite substantial sums. Many people have not been on holiday for a number of years, but you can see a lot more people booking trips this year,” he says.

“The cost of living crisis may cause some people to limit spending on holiday and cruise trips, in the next year or two. But I don’t think this will be a permanent change. There are a lot of people with money who want to spend it enjoying themselves. I don’t see this fundamentally changing.”

If you would like to be featured in our Investor Views column, contact author Emma Simon at [email protected]


www.morningstar.co.uk

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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