Saga (LSE: SAGA) shares are on an upswing. The company’s share price increased by 34% on Wednesday. And as I write on Thursday, it’s up another 5%. The strong share price reaction follows news that Pfizer’s coronavirus vaccine appears to be 94% effective for the over-65s. News that the Moderna and AstraZeneca vaccines work well for older people has helped too.
Last week, Pfizer had announced its vaccine to tackle Covid-19 was 90% effective. US pharmaceutical giant Moderna followed with an announcement that its vaccine solution appears to be 95% effective. And AstraZeneca’s news has come today.
Saga shares benefited from these vaccine announcements with the share price doubling since the start of November.
The shares have risen an incredible 50% since I recently wrote about and considered buying them. It was one of two cheap shares in the travel sector that I looked at buying in anticipation of an economic recovery next year.
Saga targets the over-50s in two main business areas, insurance and travel. News of high vaccine effectiveness for the over-65s could help it significantly.
Is it too late to buy Saga shares?
I’m kicking myself now because I didn’t act earlier, but am I too late to buy? No, I don’t think it’s too late to buy for the long term. These cheap and unloved shares could still get a further significant re-rating if Covid-19 is brought under control next year. I reckon there’s significant pent-up demand from UK holidaymakers who missed out this year.
The target market for Saga also tend to be wealthier and cash-rich. Once travelling is safer, I think confidence will return to the battered travel sector, and cruises will return to being as popular as they once were.
But I also think Saga shares could be more volatile in the short term.
Hurdles could provide a buying opportunity
While recent vaccine news has created optimism and improved the chances of an economic recovery next year, there are still hurdles to overcome.
We currently don’t know which vaccine(s) will be most suitable. Also, it could take many months to distribute and vaccinate enough of the population. There could be a difficult winter period coming with an extension to lockdowns. Vaccine delays could cause Saga shares to fall in the short term.
However, over the coming year, I think Saga could be a good turnaround story. It has had 15 years of under-investment in its brand. But it has outlined its turnaround plan, which could be the shot in the arm that it needs to reinvigorate the weakened brand.
Saga is a less risky share compared to a pureplay cruise provider due to it operating in both insurance and travel, I feel. The insurance part of the business provides stability and cash flow. The travel side of the business provides significant upside if Covid-19 is brought under control and an economic recovery follows.
Overall, any weakness in Saga shares over the coming weeks and months could be a great buying opportunity, in my opinion.
The post Saga shares are surging. Here’s what I’d do next appeared first on The Motley Fool UK.
Harshil Patel has no position in any of the shares mentioned. 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 2020