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As the world gets to grips with the ‘new normal’ there are plenty of transformational and innovative companies that will prosper in this landscape

Healthcare is a great example of a sector waiting for normality

In the wake of the first lockdown, global markets did the splits. Lockdown winners went one way and the losers the other. So far, so rational. But then things became more complicated.

As the prospect of an end to Covid emerged, many companies whose fortunes had been transformed by the pandemic found themselves being heavily penalised by the markets, which were looking ahead and assuming that once things got back to normal those businesses would shrink to pre-Covid levels. Meanwhile, many companies, such as airlines and retailers, have struggled during the past two years and are still waiting for some sort of Covid, ‘all-clear’ before their shares can really begin to lift off again. The market does not seem to be able to see far beyond the present day for these kind of stocks.

I am not recommending the following shares as tips – you need to do your own research – but they show the range of interesting companies globally that fit within these two camps.

Healthcare is a great example of a sector waiting for normality. Drug discovery has been hit harder than expected by Covid and sign-off by the regulators for any new products or drugs that aren’t respiratory related has been materially delayed. Insulet’s Omnipod 5 for diabetics was expected mid-2021 but has only just been cleared by the US Food and Drug Administration.

Another US company, Staar Surgical, awaits approval for its surgical contact lenses, first expected in 2021 and now expected some time this year. Italy’s DiaSorin is also waiting for sign-off on its Verigene II System for identifying infectious diseases. Expected in early 2022, it is now likely to be early 2023.

Firms with approved products and processes have also suffered because much of the focus in healthcare has been directed towards dealing with Covid. Cochlear, the Australian hearing implant specialist, was hit with a reduction in operations. Like many, it would benefit from some form of return to normality. There are interesting pockets of opportunity elsewhere, too.

Canada’s Badger Infrastructure digs holes, not with an excavator or by hand but by using water and pressure hoses to ‘daylight’ pipes that need fixing. Excavators have been estimated to cause $30bn (£22.1bn) of damage each year in the US when they hit other underground infrastructure. Sometimes people are killed in explosions.

The hydro-excavation market is expected to grow rapidly over the next 10 years as more people adopt this safer way of digging. As the industry gorilla, BDGI aims to double sales by 2025. Lockdowns and delays to infrastructure projects hurt BDGI in 2020 and 2021. A return to normality and the coming spend on infrastructure in the US should drive profitability.

So, what about those one-time winners now languishing? Lockdown was fantastic for innovative companies delivering education online, such as the US businesses Chegg and Coursera. Yet both traded down significantly last year by over 50% from their highs. Both benefited from a move to online for education. The market clearly saw this as a largely one-off benefit. We believe education is one of the most backward sectors in terms of innovation. It suffers from a lack of any meaningful competition to drive change and it costs far more than it should, especially in the US.

This expense makes education exclusionary, and technology such as online learning can help reduce costs and make it more inclusive. It enables teachers to reach more people and schools to enrol more students and offer a greater variety of courses. It also lets people learn at a pace right for them and in more interesting ways, gamification being a good example of this.

Quite frankly, the fact that we still have teachers standing up in class and teaching out of textbooks like they did in 1922 is astounding given the technology advances in all other sectors.

From the world of more general work practices, another US company, DocuSign, stands out. It enables people to sign important documents electronically and remotely, something that has been very useful during the pandemic. The company’s shares traded down by 50% in November on results that were far from perfect, but all Covid benefits have been removed at the present valuation levels. The market is ignoring the change many customers have made to habits or the potential to upsell to new clients. Traditionally, retention runs at 120% for DocuSign because customers start with the basic product and add to it as they realise how good it is.

The size of the potential market for DocuSign in the future hasn’t changed and still leaves plenty of growth to aim for. This year it is the pullback in shares of technology stocks such as Netflix, Paypal and Facebook that has captured the headlines.

Some may think they look like bargains now, but the list of stocks worth closer investigation goes far beyond the tech giants. For someone like me, managing a fund that invests in transformational companies that can help change the world for the better, that is exciting.

See also : When to buy and sell stocks in unpredictable times

What Investment is the premier magazine in the UK for private investors, exploring opportunities across the market, seeking out the best funds, shares and ideas. We also look at the latest trends in wealth management and tax planning to give our readers a unique perspective in a fast moving world.  

What Investment is the premier magazine in the UK for private investors, exploring opportunities across the market, seeking out the best funds, shares and ideas. We also look at the latest trends in wealth management and tax planning to give our readers a unique perspective in a fast moving world. Get access to the digital pdf and have the physical magazine delivered to your door.

What Investment is committed to exploring the best opportunities in the investment trust market. Investment Trusts are covered in every edition of the magazine, and in alternate months we delve into the best opportunities in our special investment trust section. Readers who have been with What Investment since its launch over thirty years ago regularly tell us that their subscription is one of the best investments they have ever made.

What Investment is committed to exploring the best opportunities in the investment trust market. Investment Trusts are covered in every edition of the magazine, and in alternate months we delve into the best opportunities in our special investment trust section. Readers who have been with What Investment since its launch over thirty years ago regularly tell us that their subscription is one of the best investments they have ever made.

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