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Markets crash as lockdowns emerge – but the stocks to buy will be different this time

Peloton Exercise Bike
Peloton Exercise Bike

Investors who expect huge share price rises from last year’s “lockdown winners” will be left disappointed, even as countries reintroduce pandemic restrictions.

The Government has reintroduced travel restrictions with South Africa placed on a new travel red list amid widespread concern over a new Covid-19 variant that has been detected in the country. Neighbouring Botswana, Namibia, Zimbabwe, Eswatini (formerly Swaziland) and Lesotho will also be red-listed with flights temporarily banned.

Rising case numbers across the world have led to expectations of a repeat but savers will get badly stung if they invest in the same way, money managers have warned.

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Lockdown winners’ shares crashed back to earth as economies reopened, but even these lower prices would not spark a re-run and savers should not assume such stocks are a bargain, they added.

Instead, DIY investors should look to brands that do not rely on huge but short-term shifts in the way people work and live, such as stable tech firms with multiple ways to make money.

Shares in the exercise brand Pelo­ton are 74pc lower than their peak in December 2020. Zoom, the video-­calling company that became so ubiquitous it has effectively become a verb, is down by 64pc from its October 2020 share price high. In Britain, shares in AO World, an online white goods retailer, have fallen by 76pc since January and the food delivery app Just Eat is down by 49pc since October 2020.

During the first lockdown such stocks were hot property: Zoom was the fifth most popular foreign share among users of Interactive Investor, the broker, in April 2020. Peloton was sixth most popular a year later, even after substantial share price falls.

But any bargain-seekers today, confident that the world is on a one-way path to becoming digital and anticipating a return to strict stay-at-home rules, should not be sucked in, according to David Coombs of Rathbones, the fund manager. He said the “lockdown winners” trend was over, even if there was another wave of infections and subsequent restrictions.

“The work-from-home stock market surge will not return,” he said. “Most people never returned to offices in full, so there will not be a huge shift if governments direct people to work from home again.

“Everyone who paid for a big ticket item such as a Peloton bike or a new television has bought it already, so there will not be a new spike in demand.”

The run-up in shares last year, such as Zoom’s eight-fold rise between January and October 2020 and Peloton’s five-fold gain, was a result of investors chasing hot themes rather than making calculated long-term decisions, according to Mr Coombs.

“The market looked for companies that reflected the biggest talking point of the time: everyone was trapped at home. There was just too much money chasing too few ideas,” he said.

Brandon Ladoff, a fund manager at Polen Capital, said many of the lockdown winners were not unique businesses that could withstand competition. Investing in stocks to try to make money over short periods would always be a recipe for failure, he said.

“So-called Covid winners have experienced a tough period because their competitive advantage was not clear. Peloton is more convenient than going to a gym but physical gyms are not dead and people still buy memberships. Yes, Zoom built a very effective video experience but there has always been too much competition from Google and Microsoft, which offered video calls free to existing customers,” he added.

Mr Ladoff accepted that the pandemic had changed consumers’ behaviour but added: “We prefer to find companies that can survive any type of storm because they have unique offerings that will always be desirable, such as Alphabet, owner of Google. It was a big digital winner but its future is secure because billions of people trust it to give good answers to any question.

“Another holding is Microsoft: nothing needed to change in the world for the company to keep making money.”

However, some lockdown winners that have suffered huge share price falls this year could be in bargain territory and warrant investor attention.

Victoria Scholar of Interactive Investor said spending on food delivery services such as Deliveroo and Just Eat would grow irrespective of lockdowns. Kartik Kumar, manager of the £150m Artemis Alpha investment trust, which owns Just Eat, said: “It is currently making a small loss but because of a significant investment is growing its same-day delivery network. Other investors are unduly pessimistic so we have been buying shares as they have become cheaper.”

Many DIY investors piled into the stock market last year for the first time, attracted by soaring share prices. Andreea Ion, 25, from London, said she had not given up on her lockdown favourites and still owned Teladoc, an American firm that allows people to have virtual GP appointments. It shares have fallen by 65pc from their peak in February.

“It is now seeing a higher share of members using its services than during the pandemic and expects to grow revenue at between 25pc and 30pc a year until 2024,” said Ms Ion, who runs Stocks and Savings, an investment blog on Instagram.