Tighter restrictions mean that pubs will now close in the highest-risk areas. Nobody knows how long these restrictions will last. Likewise, with Covid cases escalating rapidly in most of Europe, companies that rely on travel look set for a prolonged bout of misery. There are now very few places abroad that UK citizens can travel to freely.

While this undoubtedly affects a great many companies, Wetherspoon and Carnival could be impacted immediately. If I held either of these two FTSE 250 shares, I reckon I’d sell out now and invest in something that would help me sleep a bit better at night.

Last orders

Wetherspoon was quick to reopen after the initial lockdown closed all of its pubs back in March. By the end of August, more than 95% of its pubs had reopened. But not even Rishi Sunak’s Eat Out to Help Out scheme was enough to maintain revenues at last year’s levels. From the beginning of July to mid-August, like-for-like sales were 17% below the prior year.

Following lengthy pub closures and the erosion of profit margins, the company expects to make a loss for this year. That’s not exactly surprising. But Wetherspoon’s shares still look overpriced, in my opinion. The shares trade at 16 times last year’s earnings, a period that was unaffected by Covid. That wouldn’t be cheap in a normal year. New restrictions mean the group will remain unprofitable for longer and will take longer to recover. In my mind, that’s still not reflected in the Wetherspoon share price.

Carnival shares have further to sink

Carnival has been more affected by Covid than most, with its cruise business effectively shut down for six months. Only in the last month has the company resumed a very small number of its cruises. This is reflected in its financial performance. In the nine months to the end of August, the group made a whopping net loss of over £6bn, with revenue down 67% from the year before.

A deteriorating Covid outlook has forced the group to cancel the majority of its cruises until next spring. It still has £6bn in cash, but a monthly cash burn of over £500m means that might not last long. What’s more, the group has borrowed so much just to survive the next year that repayments are going to eat into profits for the foreseeable future. It owes £5bn in repayments in 2023 alone. The Carnival share price has already fallen over 70% this year, but I think it’s got further to fall yet.

Holding Wetherspoon or Carnival shares isn’t just about whether the companies will survive the next year or two. It’s also about what the travel and hospitality sectors will look like in a few year’s time. I have no doubt that the hospitality sector will eventually recover. But I do have doubts about what the cruise industry will look like in the future. For a good night’s sleep, I think it’s best to sell shares in these companies now. There are so many better companies to invest in.

The post JD Wetherspoon and Carnival shares: is now the time to buy ahead of a second lockdown? appeared first on The Twelfth Magpie.

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Thomas has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.

And the firm — which is due to rebrand itself as NEX Group in the near future — expects further Brexit benefits to emerge, ICAP advising that “the subsequent decline in sterling in the FX markets does provide us with a significant windfall benefit.”

Still, the operating environment remains extremely difficult for the broker, with revenues slipping 7% during April-June. And ICAP warned that “overall market conditions have been mixed as the malaise in global financial markets, low interest rates and bank deleveraging persists.”

Against this backcloth, I reckon a forward P/E rating of 16.3 times fails to fairly reflect the hurdles ICAP faces to transform its worrying revenues outlook.

Not out of the woods

Industrial belt manufacturer Fenner (LSE: FENR) continued its stunning ascent in mid-week trade, the stock hitting levels not seen since last October. Investor appetite was boosted by a trading update in which Fenner confirmed that trading remains in line with expectations.

Indeed, the company — which provides hardware to the mining and energy industries — advised that it had achieved “further benefits from operational efficiencies and market share gains” during the period from 1 March to 12 July.

But the weak conditions of its end markets still leaves a cloud hanging over the firm. Fenner commented that “our principal markets [have] shown no recovery and, in some cases… deteriorated further.”

Fenner has seen its share price shoot 70% higher from February’s troughs, leaving the company dealing on a P/E rating of 20.8 times. This is far too heady given the fragile state of commodity markets, I reckon, and leaves the stock in danger of a severe correction should industry news flow deteriorate.

Toast tasty returns

Pub chain Wetherspoons (LSE: JDW) also bounced in Wednesday business, the share hitting levels not seen since last summer following a positive update on its own.

In a bid to banish the gloom surrounding Britain’s exit from the EU, Wetherspoons chairman Tim Martin commented that “I believe the UK’s economic prospects will improve.” Martin did caution that “the unprecedented and irresponsible doom-mongering” from politicians, companies and economists alike “may lead to some kind of slowdown,” however.

Regardless, investors were cheered by Wetherspoons’ latest set of numbers, which showed like-for-like sales up 4% during the 11 weeks to 10 July. This indicates a recent rush to the bar as sales for the 50 weeks to 10 July grew by 3.4%.

Wetherspoons’ restructuring plan is clearly paying off handsomely and I expect demand for the firm’s cut-price ale and grub to keep rising. And I reckon the chain is great value at present, the firm’s P/E rating of 16.4 times for the year to July 2016 slipping to 14.8 times for the following period.

The post Should you buy J D Wetherspoon plc, ICAP plc and Fenner plc following today’s news? appeared first on The Twelfth Magpie.

More reading

• What could an Andy Burnham government mean for these FTSE 250 stocks?
• Here’s the number-1 thing I look for in shares to buy
• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.