Vaccine breakthroughs are like buses: the world waits for months for hopeful news, two then come along in quick succession. Markets rallied off the back of the announcements and lifted countless share prices in the process. Here, we delve into three such companies and assess the investment potential they can bring portfolios.
Lloyds
Banks were one of the hardest-hit sectors in the early days of lockdown. High street names had to shut their national branch networks and accelerate their digital transformations to stay operational. Investors grew skittish about how these banks would react to the first crisis since the 2008 crash with many deciding to sell their shares when faced with the uncertainty of a pandemic.
Investor sentiment was undoubtedly helped by the vaccine-breakthroughs and bank shares were carried up by the ensuing rally. When we look past these headline figures though, the underlying health of some banks is encouraging. Lloyds is a good example with its Q3 pre-tax profits of £1bn beating most forecasts.
As well as being well-placed to benefit from a stronger-than-expected demand for mortgages, this year, Lloyds has a conservative management team who are determined to reduce costs where possible. The bank is cutting over 1000 jobs as it pivots towards prioritising digital services for its millions of customers, which will help it stay operational despite future Covid-19 restrictions. This has helped the Lloyds share price trade steadily around the £0.25-£0.30 range for the past few months but a combination of strong Q3 numbers and the vaccine breakthroughs helped shares trade at £0.35 by mid-November.
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easyJet
easyJet has had an extremely difficult year for obvious reasons. Millions of holidays around the world have been cancelled and the stop-start nature of lockdowns across Europe hasn’t helped travel companies. In its full year 2020 results easyJet revealed a full year pre-tax loss of £835m, thanks in large part to a 53% fall in revenue from 2019.
The airline has already confirmed it will be running at 20% capacity for the coming months. Although this is not ideal, it will likely help cut costs across the business and give management some much-needed breathing room. The company has already been aggressively cutting costs – including selling or leasing planes – and has generated surplus liquidity of £3.1bn throughout the year. And for once this budget airline also isn’t having to worry about being outmanoeuvred in the extremely competitive budget holiday space. Covid-19 is challenging the entire holiday industry so there is little likelihood of easyJet’s lower capacity being taken advantage of by a competitor. Therefore easyJet is bullish about being able to take advantage of demand whenever it reappears (for example easyJet sales increased 900% in the days after travel restrictions were initially lifted around the Canary Islands).
Shares shot up in response to vaccine news, rallying by as much as 35% in the days immediately afterwards. A workable vaccine will still take time to be approved and distributed but timing may work in easyJet’s favour. The winter months often mean lower air traffic so easyJet is not incurring losses like it would have experienced if it ran at 20% capacity at the height of a summer holiday season. Therefore, if there was ever a time for easyJet to lower production and take a hit, now could be it.
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Nio
Nio, the ‘Chinese Tesla’ as it is sometimes called, has had a strong rally throughout 2020, with its share price surging by over 1000%. Nio shares started trading at around $3 in January but entered November at over $40.
This electric car manufacturer hasn’t let a pandemic get in its way. This year, Nio has been expanding its customer base through an aggressive marketing campaign and sales have picked up, pipping the 5000 mark in October for the first time in its history. Meanwhile Nio has been working hard on improving its battery technology and made these cheaper and longer lasting. The company has also invested in more ‘battery swap’ locations and a fleet of roaming ‘charging cars’ throughout China, which all helps reduce the overall price of ownership for its customers.
This has all created some healthy numbers for Nio. In Q2, car deliveries were up to 10,331 from 3,838 in the first quarter. Over the same period gross profit up to RMB313m ($44.3m) which was a far cry from the loss of RMB167m experienced in the first quarter. Although the electric car space is becoming increasingly competitive, Nio is in very good shape to capitalise on its brand strength and expand further into its home market of China.
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