The 5 best sectors to invest in as we emerge from the pandemic

By Rupert Hargreaves

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These could be some of the best sectors to invest in as we emerge from the pandemic and consumers rush to spend their cash.

The five best sectors to invest in as we emerge from the pandemic can be broadly split into two different buckets.

First of all, the companies that will benefit as we return to the activities we took for granted in 2019. These are corporations that have been hurt badly by the pandemic but could prosper when the savings built up over the past 12 months by consumers are unleashed. Airlines, hospitality, and luxury goods businesses are examples of companies that may see these benefits.

The other bucket may benefit from increased economic activity over the next few months and potentially years. These are traditional cyclical economic businesses such as steel companies, equipment suppliers, and manufacturers.

These companies may benefit from increased consumer spending as consumer companies invest more to meet demand.

With that in mind, here are the five best sectors to invest in as we emerge from the pandemic.

Best sectors to invest in: Cruise Lines

Cruise line operators such as Carnival, Norwegian, and Royal Caribbean have suffered huge losses over the past year.

All of these businesses saw their revenues virtually evaporate overnight. They have struggled to raise funding to keep the lights on.

However, initial indications suggest that none of these companies will struggle to fill their vessels when they’re allowed to sail.

Photographer: Adam Gonzales | Source: Unsplash

Reports suggest that consumers have been clamoring to book voyages for 2021 and beyond. In some cases, consumers have been happy to pay more for these voyages.

There is likely to be some hangover from the pandemic for at least the next few years in the cruise sector. But, if initial reports are to be believed, these companies may see a significant recovery in earnings and revenues over the next 12 months.

That’s why this industry seems to qualify as one of the best sectors to invest in as we emerge from the pandemic.

Hospitality

Another sector that the pandemic has winded is the hospitality sector.

While some restaurants have operated a takeaway service over the past 12 months, many have seen significantly reduced service compared to the prior-year period.

These companies may experience a sudden recovery over the next 12 months as consumers are allowed to eat out again.

Once again, initial indications support this projection. In regions where restaurants have been allowed to reopen, consumers have rushed to spend their stimulus checks.

This qualifies as one of the best sectors to invest in as we recover from the pandemic. Unfortunately, not all hospitality companies are created equal. Some may see a more robust recovery than others due to their large property estate.

For example, the Cheesecake Factory may profit more than Domino’s Pizza, as the latter has been able to operate virtually unencumbered throughout the crisis.

Airlines

Another sector that may see a return to growth over the next few months is the airline sector. The pandemic caused significant losses at airlines, but the industry has fared much better than other sectors, such as cruise lines.

Even though the economic recovery is only really just getting started, airline passenger numbers have already returned to 2019 levels in some regions, particularly on domestic routes. Some routes have even exceeded 2019 levels of activity.

It may take the industry as a whole some time to recover from the problems of 2020. Many companies issued additional debt and slashed staff numbers to try and cope with the downturn. However, as one of the best sectors to invest in as we recover from the pandemic, airlines such as United and Delta could be attractive investments to hold.

Construction equipment

As we move on from the pandemic and the world tries to rebuild, governments have commissioned massive economic stimulus plans. This may help the construction and construction equipment sectors, particularly in the US.

This qualifies as one of the best sectors to invest in as we recover from the pandemic because it could see several years of growth if economic stimulus plans yield the kind of returns some economists have projected. United Rentals could be an excellent way to profit from the market growth. The company rents construction and industrial equipment, an incredibly lucrative business, once the equipment is acquired.

Acquiring construction equipment can be costly, which means small construction firms tend to rent rather than buy. United is one of the biggest operators in the space.

Financial sector

Finally, one of the best sectors to buy as we recover from the pandemic could be the financial sector. Banks such as Wells Fargo and JP Morgan reported significant losses at the beginning of the crisis as bankers projected large loan write-offs.

Luckily, losses have been nowhere near as bad as expected. The considerable level of economic stimulus provided by both the government and the Federal Reserve has helped protect the economy from the worst of the pandemic. These stimulus programs have also safeguarded the balance sheets of large banks.

Boarded up New York

Photographer: Jack Cohen | Source: Unsplash

As we move on from the pandemic, these lenders should benefit in two ways. As the economy returns to normal activity levels, the demand for credit products should increase, as it usually does in economic upturns. Therefore, these banks should be able to lend more money to customers, which would lead to increased profits.

Simultaneously, as we move on from the pandemic, these lenders should be able to draw a line under pandemic losses. That should free up capital. Regulators may also remove dividend and buy-back restrictions, which may improve returns for investors.

Best sectors to invest in conclusion

These are the best sectors to invest in as we emerge from the pandemic. They should all benefit from increased economic activity and higher consumer confidence over the next few months and years.

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Author: Rupert Hargreaves

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Rupert Hargreaves does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Rupert Hargreaves has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.