When rolling lockdowns began in March 2020, travel, hotels, and hospitality all came to a grinding halt. PM Boris Johnson has said that lifting all restrictions on Freedom Day is “looking good” for 19th July, but with the caveat that overseas travel is likely to remain restricted. I predict these three recovery stocks will surge as people are compelled to go on staycations.
Somewhere to go…
‘Freedom Day’ could light a fire underneath National Express (LSE: NEX). Domestic travel is likely to increase soon, while restrictions abroad will encourage consumers to go on staycations in the UK. This recovery stock hit a low of 117p in September 2020 but has more than doubled since to 287p at the time of writing. However, it is still some way off the 475p price commanded in December 2019, and there is a strong argument to be made that it will return to this price point by the end of the year. It has money to invest, spending €13,000,000 on Spanish bus firm Rober, as it consolidates its position ahead of a general European-wide reopening. In addition to a stock recovery, I reckon dividends will return soon – though, of course, there’s a chance they might not. I would buy this stock to hold for the next five years at least.
Somewhere to sleep…
Whitbread (LSE: WTB), the owner of Premier Inn, the biggest hotel chain in the UK, is another strong recovery stock. Having risen 35% in the past year to 3,262p, it could still move back up to the 5,114p it was at in March 2019, when investors were still bullish that the price could increase further.
The company has stated that demand has “improved remarkably” since May. 98% of its hotels are back open at high capacity, with many consumers looking to affordable hotel options, unwilling to spend the same money at home as abroad. As some of its competitors have gone under, there is also significant potential to grab an increased market share.
Another delay to Freedom Day could hamper growth, while staff shortages have also created problems. However, the end of furlough in September will add two million jobseekers to the employment market. This is a stock I would hold for the long term, a position my Foolish colleague Nadia Yaqub agrees with.
Somewhere to eat…
JD Wetherspoon (LSE: JDW) is my third recovery stock choice, which reached a high of 1,694p in December 2019, compared to a price of 1,223p today. The budget pub chain has always been popular, both as a cheap eatery and as an investment choice. In a few short weeks, its pubs will open fully without social distancing, which will have a positive pressure on turnover. Moreover, the ONS predicts the collapse of 20% of pubs by August due to debt pressures, and Wetherspoon will likely to be able to capitalise on their misfortune through increased custom.
The same potential issues that haunt Whitbread apply; an unlocking delay and staff shortages. Tim Martin, founder and CEO, has called for a “reasonably liberal immigration system,” recognising that many European staff will not qualify to work in the UK under strict new rules to be brought in, while others have left hospitality altogether. However, in an unlocked UK, being so busy that you cannot hire enough staff isn’t the worst problem to have.
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Charles Archer owns shares in Whitbread. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021