COVID-19 cases are spiking in many regions around the globe, including parts of the UK. As a result, a three-tier restriction plan has been issued by the government, which introduces local "COVID alert levels" to manage outbreaks appropriately.
Considering the sustained impact of this pandemic, it is key to establish exposure to companies that can better adapt to this "stay-at-home, work-from-home" environment. The market reaction when lockdown measures were first implemented has shown that some companies are better equipped to withstand and even benefit from lockdowns.
With that in mind, these two FTSE stocks are in a strong position to outperform should local lockdowns continue:
1. Mondi
Paper and packaging firm Mondi (LON:MNDI), (OTC:MONDY) which has a market cap of £7.8 billion (around $10.1 billion), is listed on the FTSE 100 index.
Its operations extend to more than 30 countries and multiple industries. Mondi manages forests, produces pulp, paper and plastic films, and provides packaging solutions worldwide. It has also been proactive in offering sustainable products. In 2019, revenues were €7.27 billion (£6.62 billion or $8.55 billion).
On Oct. 15, the group provided a trading update and announced Q3 results. While widespread global lockdowns earlier in the year brought some disruption to Mondi's operations and especially to industrial sales, the company saw robust demand for consumer products and e-commerce packaging products.
Despite overall stable sales, lower selling prices and currency headwinds have affected margins and profitability. Third-quarter earnings declined 13% from the previous quarter.
However, there are reasons for optimism in the quarters ahead. Management stated:
"In Corrugated Packaging, demand from e-commerce and consumer applications remained strong.... Flexible Packaging (NYSE:PKG) demand remained resilient during the period and volumes in our paper bags business grew year-on-year.... Encouragingly, Uncoated Fine Paper demand improved as lockdown restrictions in Europe, Russia and Southern (NYSE:SO) Africa eased with a gradual pick-up in activity in schools, offices and commercial printing."
Exports to China have also been recovering since the beginning of the summer.
The industry may sound boring, but as e-commerce continues to boom, the demand for Mondi's products and services also likely to stay steady and even increase.
Since the start of the year, the stock is down about 8%. On Oct. 20, MNDI share closed at 1,602.5p ($41.29 for U.S.-based shares). The current price supports a dividend yield of 2.8%. Forward P/E and P/B ratios stand at 13.85 and 1.24, respectively.
2. Royal Mail
Postal service and courier company Royal Mail (LON:RMG), (OTC:ROYMY) has stood the test of time, with a history dating back to the 16th century.
RMG shares started 2020 around 231p (or $6 for U.S.-based shares). On Mar. 16, they hit a multi-year low of 118.86p on the FTSE 250, while U.S. based shares fell to $2.99 on Apr. 3. However, over the last six months, the stock has made a remarkable recovery, with shares now hovering at 244p (or $6.30 in the U.S.).
For long-term shareholders, the recent recovery is possibly not good enough. Since May 2018, Royal Mail stock is down more than 60%. Investors have been concerned with a number of issues affecting growth and earnings. Management has also been at odds with unions over changes to business practices.
On Sept. 8, the group released its annual general meeting trading statement, which showed total revenue was up by £139 million, or 33.1% year-on-year (YoY). The improvement was thanks to a 34% increase in parcel volumes YoY. More e-commerce meant Royal Mail delivered 177 million more parcels.
As expected, letter revenue declined by 21.5 YoY as 1.1 billion fewer letters were sent (a decline of about 28% YoY).
Royal Mail currently handles more than half of all parcel deliveries in the UK. We expect the uptrend in parcel volumes to continue in the coming months. With a corporate history of about 500 years, management is also likely to take the right steps to move the group forward.
Bottom Line
The pandemic has changed consumer trends worldwide and affected valuations and the outlook for a large number of stocks. While some winners could be easier to predict, other shares may need further research. Mondi and Royal Mail are two FTSE businesses that deserve your attention.
We also like shares of the e-commerce giant Amazon (NASDAQ:AMZN), cleaning and consumer products group Clorox (NYSE:CLX), cybersecurity provider Crowdstrike (NASDAQ:CRWD), chip giant NVIDIA (NASDAQ:NVDA), retailers like Home Depot (NYSE:HD) and Target (NYSE:TGT), Canada-based Shopify (NYSE:SHOP), whose platform allows merchants to open e-commerce sites, and virtual healthcare company Teladoc (NYSE:TDOC), among others.
These businesses are likely to see strong demand for their products and services as millions are expected to spend more time at home. A busy earnings season is bringing volatility to the U.S. markets. Any short-term profit-taking in robust names could give long-term investors better entry points into these shares.
Finally, there are also thematic exchange-traded funds. Examples include the Amplify Online Retail ETF (NASDAQ:IBUY), the Direxion Work From Home ETF (NYSE:WFH) and the iShares Virtual Work and Life Multisector ETF (NYSE:IWFH). They may be appropriate for investors who prefer buying a fund instead of individual stocks.