Two Mondays in November have set the tone for a strong rebound in global stocks: November 9 was the big one, with Pfizer/BioNTech announcing that its coronavirus vaccine was 90% effective, while Moderna's latest update on November 16 kept the momentum going.
Events have moved on fast since late October, when markets were in the doldrums ahead of the US election. The Dow Jones and S&P 500 are now at record highs again, while UK indices have bounced back strongly.
Looking in detail at the 314-stock Morningstar UK index, some of the top 10 gainers in November have put in some staggering returns in the month so far: two stocks have managed to double this month, transport catering group SSP (SSPG) and Cineworld (CINE) are up over 100%.
It’s not a coincidence that Cineworld is also the index's second biggest faller in percentage terms year to date with a loss of over 77% since January. We recently wrote about the cinema operator as an example of how coronavirus has disrupted certain industries completely. Before the second lockdown, Cineworld decided to shut its UK and US cinema screens, blaming a lack of blockbusters and strict social distancing guidelines.
Four of the 10 biggest risers of the month so far are directly involved in travel: National Express (NEX), Jet2 (JET2), easyJet (EZJ) and bus operator Go-Ahead Group (GOG). Two more of these companies, SSP and WH Smith (SMWH), have business models directly tied to international travel and commuting. And while pubs remain closed, All Bar One owner Mitchells & Butlers (MAB), is the third biggest riser in November with a gain of 83%.
Commercial property REIT Hammerson (HMSO) rounds off the top 10 with a still impressive 57% gain. With many people working from home still and non-essential retailers forced to close again in November, commercial property has been under severe stress this year and most open-ended property funds remain gated to investors. The prospect of a vaccine in the next six months provides some hope to the sector that some form of normality, whether a phased return to office life, or shops and restaurants reopening, will resume next year.
Loss Aversion
One outlier on this list is retail bank Virgin Money (VMUK). Banks’ dividends remain frozen after regulators intervened in March and fears over the sickly state of the UK economy is keeping valuations in the doldrums. According to Morningstar analyst Nathan Zaia, Virgin Money shares have a fair value of 170p, so are moderately undervalued at 142p. The bank is “grinding away in a challenging economic environment”, Zaia says, but it has gone into the crisis with a “pristine capital position”.
Those investors who managed to time their purchases of these Covid-sensitive stocks have been handsomely rewarded. But those who bought at the start of the year will still be nursing heavy losses. Hammerson hares, for example, started the year at 141p and are now 23p, despite the strong rebound in November and wider stock market recovery this year.
These losses will be less painful than in mid-March at the peak of the market crash, but as Morningstar’s Dan Kemp points out, losing money can make a big impact on investor psychology: in his example, a stock that falls from 100p to 50p and then to 25p, hasn’t just lost 75% of its value, it's an investment that halved twice.
The November rally has favoured value stocks over growth, but is the tide finally turning for out-of-favour stocks? Graham Campbell, co-manager of the TB Saracen Global Income and Growth Fund, says that while it’s early days, the signs are promising for a resurgence in value: “Many businesses that fall into the Value category … rallied dramatically from a low base, remain very cheap and will benefit significantly from a resurgence in global activity.”
Jupiter UK Special Situations manager Ben Whitmore, speaking at the Morningstar Investment Conference this week, says investors are looking for a “change in the current narrative” before backing value over growth decisively, whether that’s a rise in interest rates or change in the economic outlook.
