The UK has now approved the Pfizer vaccine for use. Positive vaccine-related news has tended to help the stock market. I expect that this UK vaccine approval will also lead to positive sentiment for recovery shares.
One share in particular I like is pub operator JD Wetherspoon (LSE: JDW).
Why vaccine approval is good news for Wetherspoon
The UK has had a stop-start system of lockdowns across the country this year. One of the worst-affected types of business has been pubs and there has been uncertainty around whether and how pubs can open at times. For example, in England, the requirement to serve substantial food meant forced closure for pubs without dining offered. But pubs also face a unique problem with stock disposal. While some shops can shut their doors and reopen with the same stock, pubs cannot. Beer goes stale. So each lockdown has meant many pubs have literally had to pour valuable beer down the drain rather than sell it to thirsty punters.
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The selective lockdown approach to pandemic management is thus very damaging for the pub trade. A vaccine offers a different way out of the pandemic. UK vaccine approval will allow a mass vaccination effort. With that, public life ought to get back to normal – including pubs being open.
JD Wetherspoon has had a torrid year, like many pub owners, and in October reported its first loss in over 30 years. However, if the pub trade goes back to normal, it is ready to benefit. Where it has been allowed to do so, it has kept its pubs trading through lockdown. Additionally, it is still standing. I expect a lot of pubs will unfortunately go under this year and never reopen. That means a lot of trade for other pubs. At least some of that is bound to come the way of Wetherspoon.
I’d buy Wetherspoon shares now
The shares have already recovered a lot this year, more than doubling from the lows they hit in March. In November alone, they put on almost 30%. So there already seems to have been a shift in sentiment on the shares. That may have been in anticipation of the vaccine.
However, I continue to see the shares as good value and would buy them today. The company has a winning formula in the market, with its combination of cheap beer and popular locations. Its chief executive has continued to increase his stake over many years, aligning management interests with those of shareholders. While its balance sheet has more debt than I would like, it is still more attractive to me than the balance sheets of competitors such as Mitchells & Butlers.
I expect the UK vaccine approval news will be broadly good for market sentiment. Specifically, I think it will force a reevaluation of companies that stand to gain business from mass vaccination. Wetherspoon is one and I would buy it today.
