3 Out of Favour Lockdown Winners

VIDEO: These three stocks were investor favourites during lockdown but have since sold off. But Kilik & Co's Rachel Winter thinks they will keep growing

Holly Black 12 May, 2021 | 11:40AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Rachel Winter. She is Investment Director at Killik & Co. Hello.

Rachel Winter: Hello.

Black: So, Rachel, you are here for our monthly roundup of three stock picks. Where shall we start today?

Winter: Well, the general theme for this month – so, we've got lots of companies that have clearly done really well in lockdown because people have been stuck at home, forced to use their products and services. And the shares of a lot of these companies have sold off quite heavily now that the economy is starting to open again, but we're actually seeing some of these now look quite attractive.

So, let's start with Ocado, which a lot of people view as an online supermarket, but actually, now that's a very small part of its business. And if you look at Ocado's website, it actually describes itself as a technology and robotics platform. So, the main part of the business now is what's called OSP or the Ocado Solutions Platform. And what this is, is the sort of end to end software that allows consumers to place orders for groceries all the way down to these big automated warehouses that allow the orders to be picked, processed and delivered. So, what Ocado is now doing is selling this system on to other retailers and that's where it's now making the majority of its money.

Black: Yeah, and it's obviously done very well in lockdown. But if shares are sold off, it seems crazy that anyone is thinking that that trend of online shopping is not going to be here to stay, doesn't it?

Winter: Absolutely. I mean, in lockdown so many people will have been forced to try online shopping for the first time, and we do think a lot of people will stick with it even when lockdown starts to lift.

Black: Okay. What's stock number two?

Winter: Second one is PayPal, which is an online payment platform. Clearly, it's done very well in lockdown because again everyone has been stuck at home, online shopping. But we do think that people will have got very used to using it and that therefore they will continue using it even when the economy starts to open. What's more, PayPal is now offering in-store payment. So, even when people do start going back to shops, we think it will do well because no one really wants to touch cash anymore because it's seen as unhygienic.

And what's more in PayPal's last update last week, they have actually announced a lot of new products and services which we think will help to grow the business even more. And these include things like an investment option, which will allow people to buy cryptocurrency, budgeting tools, and even software that allows people to pay their bills. So, there's a lot in there that we would think will help make PayPal become more integral to people's lives.

Black: And that's interesting that PayPal is branching out into new areas. Do you think it needs to do that or has it got strong enough foothold in the market anyway?

Winter: It doesn't need to. It's an incredibly strong and successful business as it is. But the more it can ingrain itself into people's lives, the more profitable it will become. So, I think it is moving in the right direction.

Black: Okay. And our final stock?

Winter: The final one is Spotify, which is the world's leading audio streaming service. Again, it's done very well in lockdown because people have been looking for entertainment. We have seen huge growth in audio streaming over the last few years, and we've also seen growth in the popularity of podcasts, and that's another area in which Spotify is moving into quite heavily. But we do think that as the economy starts to open again, people will need more music and more entertainment as they are traveling and commuting and also bars and restaurants will want more music as they are allowed to open again, and that should be good news for Spotify. And we have seen very impressive growth in subscribers over the last few years and at the moment, Spotify has over 345 million active users. So, it really is an absolutely massive platform.

Black: That is huge. But has it reached a sort of peak Spotify saturation point?

Winter: We don't think so. The numbers are still growing very quickly. We've seen them growing over the last year. And by moving so heavily into podcasts, we think Spotify has added a new element to its platform that should hopefully attract even more subscribers.

Black: Rachel, thank you so much for your time. For Morningstar, I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor, Morningstar.co.uk


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