The stocks most likely to benefit from the UK’s economic recovery

28th January 2014

Official statistics have revealed the UK economy grew at its fastest pace since the onset of the financial crisis in 2013.

But not all companies will benefit in the same manner. James Thorne, UK equities manager at Threadneedle Investments explains why equity investors will prove more discerning with their allocations this year as companies’ earnings growth moves into the spotlight…

2013 proved to be a stellar year for most developed stock markets. Central bank liquidity drove returns and investors’ spirits were lifted by the growing prospect of an economic recovery. In the UK, this prospect moved closer to becoming reality today.

However, the recovery won’t translate into a free ride for all. Recent retailer results highlighted a ‘two-speed UK High Street’ and we expect similar wrangling over market share in other sectors. Investors will only reward those companies that can meet or beat earnings expectations while the others will stay on the side-lines.”

The following companies are not only more likely to benefit from the economic recovery, but also have a business strategy that should lure customers away from competitors.

Retailers & Food

The multi-channel strategy is working for retailers as savvy shoppers are shunning big-box supermarkets, preferring to order online or flocking to discounters such as Aldi and Lidl.

House builders and aerospace

While not yet hitting pre-crisis levels, the US housing sector is recovering and UK mortgage approvals hit their highest level since 2007 in December. An improving outlook should allow a continued demand for construction materials and housing. With oil prices remaining high, the airline industry continues to invest in more fuel-efficient aircraft, while global air travel has been growing.

Consumer services and technology

Consumer services, particularly the media, should be winners of the economic recovery, with the World Cup in Brazil further boosting advertising spend.

UK stocks rode the wave of confidence and liquidity last year that washed around the world. This year, active equity investors will be looking for businesses that can underpin today’s higher valuations with solid earnings growth. The UK offers a range of opportunities for them.

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