2021 promises to be an interesting year for the stock market. Could a vaccine-fuelled economic recovery be a catalyst for a rally in share prices? Or could another major sell-off be lurking just around the corner? The truth is that nobody really knows.
Nevertheless, with a swift coronavirus vaccine rollout underway and the Bank of England forecasting a rebound for the economy, there’s reason to be optimistic.
With this in mind, I’m considering several shares to buy for my investment portfolio. Today, I’d like to discuss two of them.
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Profiting from the potential for pent-up demand
First up on my watchlist is the UK’s largest online car sales platform, Auto Trader (LSE: AUTO). With low business costs, the company is usually able to generate shed loads of cash. But that’s conditional on strong sales growth. And it’s important to note that lockdown restrictions pose a serious challenge to companies like Auto Trader.
As the UK entered its third national lockdown, Auto Trader was again forced to waive its fees. Evidently, this will have a tangible negative impact on revenues. Thus, if lockdown restrictions remain in place for a while longer, the company could lose a significant amount of money.
Furthermore, the prospect of navigating potential Brexit uncertainty poses a further risk for the UK car market. If used car transactions suffer as a result, Auto Trader would certainly feel the pressure.
However, with the possibility of a strong economic recovery starting in 2021, I’m optimistic the online car dealership has a bright future.
What’s more, the analysts at Hargreaves Lansdown point out that underlying demand appears to be strong. With new car registrations at a 30-year low, I think there could be significant pent-up demand waiting to be released once restrictions are lifted.
Ultimately, a combination of a healthy balance sheet, ample liquidity and a dominant market position explain why I’ll be keeping a close eye on Auto Trader in the weeks and months to come.
Making the most of a strong economic recovery
One sector that’s likely to welcome a robust economic recovery is the housebuilding industry. As such, one housebuilder on my watchlist is Barratt Developments (LSE: BDEV).
As one of the largest property development companies in the UK, Barratt seems to have emerged from the crisis in good shape so far, contrary to most expectations.
Earlier in the month, the housebuilder reported a 10% rise in revenue in the first half, with the increase fuelled by a record 9,077 completions and a slight rise in average selling prices. As a result, Barratt plans to pay 7.5p interim dividend.
That said, the end of the stamp duty holiday and Help to Buy scheme is fast approaching. So I fear that demand could level off, posing a significant risk to the fortunes of housebuilders in the months and years to come.
Furthermore, rising interest rates would be a damaging blow to Barratt, but I’m not certain we’ll see that any time soon given the Bank of England’s efforts to stimulate growth in the wake of the coronavirus pandemic.
All things considered, the UK property market appears to be in good shape. As a result, I’ll be keeping Barratt Developments firmly on my radar. In my view, a forward price-to-earnings ratio of 17.5 is justified given my optimism for the year ahead.
