October 23rd 2020 5 min read
2020 has been a tough year so far. The coronavirus pandemic has caused havoc on the job market, alongside the wider economy.
A number of sectors have fallen victim to the downturn, namely companies operating in sectors like travel and hospitality.
Things are notably uncertain and challenges have arisen, especially when it comes to picking investments for the upcoming year.
Before deciding upon what stocks to invest in for 2021, it’s important to consider the conditions at play.
Quite simply, people are not able to travel as easily, people are spending considerably more time at home and any outdoor activities follow social distancing rules.
To mirror that, governments around the world are changing their policies at an alarming rate, which means that the economic environment is terribly uncertain for some businesses.
An obvious example is with travel corridors. Governments are chopping and changing the countries that are allowed to enter their country on almost a monthly basis, which creates a tremendous amount of volatility for travel companies.
These conditions are unlikely to change much as we enter into 2021, so here are 3 sectors that are likely to thrive next year.
This sector is probably the most obvious to thrive under COVID-19 conditions and we’ve already seen that this has been the case.
The stock price of Amazon, for example, has almost doubled since March 2020 – which is obviously a phenomenal return.
The reason for this is pretty simple, people are spending much more time at home and have limited shopping opportunities outside due to social distancing restrictions.
Therefore, people are increasingly more likely to turn to the internet to buy products, with Amazon being the top of mind brand and therefore winning a huge proportion of the business.
Aside from Amazon, people are limited in their opportunities to socialise so companies like Facebook will benefit. People are also unable to do social activities like going to the movies, so companies like Netflix and Google will win more business.
It might not seem like such an obvious choice but investment banking is likely to thrive in 2021, especially if the economy starts to normalize.
The reason is that investment banks play a crucial role as a an intermediary in large and complex financial transactions.
Companies that have suffered greatly from the pandemic will need to acquire finance in order to kickstart their business and investment banks will play a key role in that process.
Investment banks help clients by providing financial advice, issuing corporate bonds and finding investors for those bonds, underwriting new stock issues and handling mergers and acquisitions – all of which are likely to be high in demand in 2021.
Think about it this way, some companies will need money to prop up or kickstart their business, which could happen through debt obligations, the issue of new stock or by selling off assets.
Bigger companies will want to (in some cases) acquire struggling firms, which there are going to be more of at a time like now, and other companies may want to merge in order to ensure collaborative survival for the benefit of employees and shareholders.
In addition to this, companies will potentially need advice on how they can stabilise their stock price or maximise wealth for shareholders. Therefore, said companies may turn to investment banks for financial advice.
Each of these functions are likely to involve an investment bank.
This last sector coincides with the Amazon discussion and online shopping. With limited shopping opportunities, consumers are increasingly more likely to turn to the internet to buy products.
This larger demand for online shopping is positive correlated with improved demand for logistics companies as the products obviously need to be delivered. E-commerce companies rely heavily on logistics companies like UPS, FedEx and the Royal Mail to complete their transactions (deliver the goods).
Since March 2020, we’ve already seen sizeable growth in logistics companies, which is likely to continue past Christmas and into 2021.
The stock price for UPS, for example, has almost doubled since March 2020, mirroring the growth seen in e-commerce companies like Amazon or eBay.
Unless things change dramatically in 2021, which they are unlikely to with the absence of a vaccine, logistics companies are set to continue their growth into next year.