After a year and a half of deaths, lockdowns, and job losses, we’re finally coming to the end of this crisis. At the time of writing, 78.3% of eligible Canadians have had their first dose of the vaccine, while 42.8% have been fully vaccinated. Herd immunity could be just a few months away.
The economy, however, has already reopened. Bars, restaurants, malls, cinemas and vacation hotspots are in full swing. Meanwhile, Canadian households have excess savings and pent-up demand for travel and leisure. All this means that the economy could bounce back stronger and faster than ever.
Here’s how investors should prepare for this rebound.
Companies in the travel, leisure, and consumer sector are probably having one of their best quarters right now. This rebound will be fully reflected in their balance sheets in the months ahead.
Recipe Unlimited (TSX:RECP) is a great example. The company owns and manages restaurant brands across the country. Most of its outlets, including the Keg, Burger’s Priest, Swiss Chalet, Harvey’s, Second Cup, Kelsey’s Neighborhood Bar & Grill, and Montana’s Cookhouse, rely on indoor dining for much of their revenue. This revenue was stunted during the lockdowns.
Now that provinces are reopening, data suggests restaurant reservations have bounced back strongly. In fact, without mandatory restrictions, bookings would have surpassed their pre-crisis levels. That’s great news for Recipe Unlimited.
The stock has already doubled in value over the past year. It is currently trading at a forward price-to-earnings ratio of 12.8. If earnings surpass expectations, the stock could prove to be even cheaper in hindsight.
Excess savings and pent-up demand while supply remains constrained could lead to high prices. Analysts and investors are increasingly concerned about inflation over the next few months. Last month’s inflation rate of 3.6% was the highest in over a decade.
Much of this inflation is driven by one key commodity: oil. That’s why undervalued energy stocks like Suncor (TSX:SU)(NYSE:SU) are ideal inflation hedges for the year ahead. Suncor stock is up 38.4% year to date, while West Texas Intermediate (WTI) crude is up 52.4% over the same period.
Some investors are now bracing for the price of crude oil to cross triple digits in the months ahead. That could push Suncor stock much higher. Meanwhile, the stock trades at a price-to-book value ratio of 1.29. It also offers a dividend yield of 2.8%. That valuation and the prospect of higher oil prices makes Suncor an ideal bet for 2021.
Fortunately, this global crisis seems to be close to a final resolution. Record levels of the Canadian population have had their first dose. By late 2021, the country could have achieved herd immunity. That will mean the economy could be reopened fully.
For stocks like Recipe Unlimited, that’s great news. Early indicators suggest pent-up demand could broaden its top line in the months ahead. However, investors should also be concerned about inflation and add hedges like Suncor to the portfolio.