This year’s stock market rally hasn’t completely wiped out the losses investors suffered in March, but it’s getting there. At time of writing, the FTSE 100 stands at 6,350, up 27% since it dipped below 5,000.
The following two stocks have now doubled since the lows of March, highlighting the rewards of buying ahead of the inevitable stock market rally.
Home improvements retailer Kingfisher (LSE: KGF) hit a low of 125p a share in March. Today, it trades at 279p. It flew back into the FTSE 100 in June, after crashing out in March. Last week, the B&Q-owner flagged up a 17.4% rise in total like-for-like Q3 sales to £3.46bn, as consumers did up their homes in the coronavirus lockdown. Online sales soared 153% and now represent 17% of total group sales, around double last year’s total.
The pandemic continues to cast a shadow, but this is a strong showing from a retailer in the time of coronavirus. Stores, such as B&Q and Screwfix in the UK, and Castorama and Brico Depot in France, have stayed open due to their essential status. Sales have also been boosted by the work-from-home trend, as people adapt their properties.
Stock market rally opportunity
Kingfisher’s biggest problem right now is fulfilling orders, as supply chains are disrupted by the pandemic. The other threat is people switching spending to entertainment once the economy opens up. But I’m still tempted by the Kingfisher share price, which trades at just 10.1 times forward earnings. The group scrapped its dividend in March, but that will return at some point.
Royal Mail Group (LSE: RMG) crashed out of the FTSE 100 back in December 2018, and has yet to claw its way back. The FTSE 250 group has been heading in the right direction lately though, after outpacing this year’s stock market rally. Coincidentally, it also dipped below 125p in March but, today, it trades at 279p.
Stock markets responded positively to last week’s update, with another rally in the Royal Mail share price even though it posted a £20m group operating loss for the six months to 3o September. That’s down from a £61m profit last year. Investors prefer to focus on the positive, in this case a 9.8% rise in revenues to £5.7bn.
I won’t buy Royal Mail today
Parcel volumes have soared as people shop from home to overtake letters revenues for the first time. Parcels now make up 60% of total revenues, up from 47% last year, and that trend is going to continue. Virus-related measures, such as social distancing at work and staff absence, cost the group money. Hopefully these will ease next year, if those vaccines do their work. Although I’d look elsewhere to play the next stage of the stock market rally.
Royal Mail still needs an overhaul, and initiatives such as reducing management layers will save up to £330m in operational costs. However, the group is still weighed down by its history, and its turnaround will remain slow going.
Trading at 15.1 times earnings, the Royal Mail share price is no longer that cheap. There’s also no dividend today. I’d buy Kingfisher first.
