A cyclical bounce back sparked as life returns to normal and people let loose a year of pent-up spending is widely expected in the coming months. Markets have raced to back those companies perceived to be best placed to come out on top in the Covid-19 recovery, and the rebound has occurred at a pace few envisaged this time last year. As a result of this optimism, a number of cyclical, industrial, and consumer stocks are now trading at generous multiples based on an assumption that profits fully recover. 
As economies continue to emerge from national lockdowns, we believe this shift in sentiment has led many investors to overlook strong opportunities in other sectors. There remain compelling investment opportunities in sectors that are perhaps less obvious beneficiaries of any post-lockdown ‘boom’.
It is in these missed opportunities that real value can be found. Companies which are currently in ‘recovery mode’ but could also see the impact of the pandemic bolster their markets stand out to us, as do businesses where there is room for improvement by management. These are the opportunities where we believe value can be unlocked and investors can reap stable long-term returns.
Healthcare is one such sector where the market’s focus has been on the clear, beneficiaries helping fight the Covid crisis, leaving certain other names overlooked despite long-term benefits to their markets caused by the wider impacts on society. For example, Spire Healthcare*, a leading private hospital operator in the UK, which is a now returning to normal operation following the pandemic.
Private hospitals had their capacity reserved during the pandemic, at cost, to support the NHS. Now, as we emerge from lockdowns, the healthcare landscape has fundamentally changed. The sector faces a backlog of patients waiting for both private and NHS treatment that is predicted to take many years to clear. A surge in patients will require private-sector support to ensure all receive the treatment and care they need in a timely manner, and Spire should be a key arm to offer support and is well placed to benefit.
The pandemic has also shifted patients’ willingness to engage with healthcare services digitally. Spire rolled out online tools in the crisis to enable digital pre-assessment which has benefitted customers who enjoy improved convenience while making the service more efficient for Spire to run. We believe further such self-help opportunities exist and that Spire shares continue to be attractive.
The business provides hard-to-access medicines to healthcare professionals as well as services to clinical trials across the world. At the outbreak of the pandemic early last year amid a slowdown in hospital treatment and clinical trials, demand for Clinigen’s services fell. Yet with the recovery in markets and continued easing of lockdown measures the company seems set to benefit from a sustained recovery in demand going forward. It could well also benefit from business won during the pandemic including distribution support for vaccine roll out, new product launches, and cost savings as recent acquisitions are better integrated into a single operating group.
With the rise of working from home and the reliance on technology in almost every aspect of lives – particularly during lockdowns – the B2B media sector is another that looks set to benefit from our post-pandemic recovery. While the likes of in-person events and conferences came to a halt last year, those companies that have been able to adapt to a new way of working and make the shift to delivering their services digitally look set to benefit.
One example is Wilmington. It is a provider of data, training, and events to a number of markets. The company enjoys significant recurring, subscription revenue but also runs in-person events and training both of which were hit hard by Covid-19 as lockdowns came into effect. However, after a period of investment in internal systems under a new management team, Wilmington was well placed to use this adversity to its advantage. The pandemic has allowed the company to accelerate its long-planned shift to digital delivery of its services, with formerly reluctant customers embracing this new channel. This ability to adapt and drive internal improvement, coupled with the return of its in-person services, in our view, marks Wilmington out as a prime beneficiary of the Covid recovery.
Digitising its content allowed Wilmington to keep offering services to its customers through the pandemic, gaining share from competitors. This digital-ready content can now more easily be packaged into new products, served to new customers and used to accelerate growth. The shares are still significantly below their pre-pandemic level, despite the firm’s improved prospects.
The debate about the extent of the upcoming economic recovery rages on, but what is certain is that good businesses, with the willingness and ability to adapt and continue to make improvements, will continue to benefit from strong upwards potential as we return to a new kind of normal. Covid-19 has changed the shape of the world we live in. Looking past market noise to seek out the investment opportunities that others have missed will be a crucial part of a successful portfolio in the coming years.
Ed Wielechowski is a portfolio manager on Odyssean Investment Trust. The views expressed above are his own and should not be taken as investment advice.
* since writing this piece in early May, Spire has been bid for and the news flow on Clinigen continues