Deutsche Bank: Making sound investment decisions during unprecedented times
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Deutsche Bank: Making sound investment decisions during unprecedented
times
When choosing my five companies, I had two over-arching factors influencing my decisions.
Firstly, I wanted a diverse selection of companies. A lot can change over a week and should
an entire sector see a large collapse, I did not want to be holding a large proportion of
shares in that sector. Therefore, I wanted diversity, not only across sectors but also amongst
the size of the companies.
Secondly, a week is a short amount of time. I hedged my bets based on the anticipation of
new announcements this week, whether they be from the government or from companies
themselves, and on the recent volatility within share prices for companies.
1. Reckitt Benckiser- £75
On its website, Reckitt Benckiser describes itself as a company ‘innovating in areas
like personalised nutrition, wellness, and digital health and hygiene’. They own a
portfolio of well-known companies including Dettol, Lysol and Nurofen.
Reckitt Benckiser has had a significantly successful first quarter, with sales rising
13.5%, its best quarter of sales growth in twenty years.12In the midst of the Covid-19
pandemic, Reckitt Benckiser has thrived, supplying much disinfectant and cough
therapies. Research firm Nielson highlights that in March and April, general sales of
aerosol disinfectants jumped 230.5% and multipurpose cleaner rose 109.1% from
this time last year, illustrating an undeniable demand for goods such as the ones that
Reckitt Benckiser helps to provide.3 With the recent announcement of schools
receiving students back in June, and businesses beginning to prepare to open back
up, I expect this demand to increase even more, especially under the careful health
and hygiene regulations and guidance being published by the government
frequently.
Further, Reckitt Benckiser has been making significant ventures internationally. In
the USA, they have collaborated with hotel chain Hilton to launch the Hilton
Cleanstay programme, with the aim of delivering an ‘industry-standard of cleanliness
and disinfection’.4 It has also recently committed 500 million Pakistani rupee to help
Pakistan fight the pandemic induced crisis.5 I believe that both of these examples
highlight the continuous expansion the company is undertaking, and the animal
1
https://www.hl.co.uk/news/articles/coronavirus-and-stock-markets-so-far-the-shares-that-have-caught-our-
eye
2
https://www.fool.co.uk/investing/2020/05/14/1k-to-invest-id-buy-these-2-bargain-ftse-100-stocks-today-to-
get-rich-and-retire-early/
3
https://edition.cnn.com/2020/05/07/business/companies-thriving-coronavirus-pandemic/index.html
4
https://www.globalcosmeticsnews.com/reckitt-benckiser-teams-up-with-hilton-to-launch-hilton-cleanstay-
prorgam/
5
https://www.phoneworld.com.pk/reckitt-benckiser-invest/spirits belonging to Reckitt Benckiser shown through their continuation to invest in
these kind of proposals. This business confidence seems justified by Reckitt
Benckiser’s continued outperformance of its predicted growth estimates and net
revenue estimates.6 This makes the case that the value of Reckitt Benckiser shares is
likely to continue to increase over the next week, especially if they are to announce
any developments in these projects, or any new initiatives, within that time.
In summary, investing in Reckitt Benckiser appears to have a low risk associated with
it. As one of the leading top 30 FTSE companies by market capitalisation, Reckitt
Benckiser seems to assure a consistent increase in share value and dividend
payments.7 I find it unlikely that any developments within the next week could
negatively impact the demand for Reckitt Benckiser’s goods and services.
Therefore, I have decided to invest £75 in Reckitt Benckiser, as although I think the
share value will continue to increase, I do not think there could be a massive
acceleration of share value growth over the next week either. This investment is one
that I believe to be on a strong foundation and associated with a low risk of losing
money.
2. Tesco- £75
Tesco is a dominant supermarket in the UK, commanding almost 27% of the UK
grocery market.8
Supermarkets have tended to have seen less of a drop in demand for their products
during the Covid-19 pandemic, especially for the supermarkets who offer food
delivery such as Tesco. Basic food has a relatively inelastic income elasticity of
demand, meaning that even if income falls due to workers being furloughed or losing
business completely, the demand for food will not be overly responsive to this. Due
to lockdown, people are no longer able to eat out at restaurants or cafes and this
may have slightly offset any decrease in demand for food due to reduced incomes. In
addition to this, Tesco is considered to have a superior ‘own brand’ range, so, as
people become more careful with their money due to the economic uncertainty
accompanying the pandemic, these cheaper substitute products should increase in
demand.
Investing in Tesco for just a week, however, is risky. Since the beginning of the
pandemic, the Tesco share price has seen a high degree of volatility. Even though it
is one of the top 30 FTSE companies by market capitalisation, the Tesco share price
has seemed to not follow any specific trajectory. I found that last week (starting 11th
May), the share price reached a high of 250p and a low of 236p.9 Therefore, I have
6
https://www.investing.com/news/stock-market-news/reckitt-benckiser-posts-record-sales-on-disinfectant-
boom-2155796
7
https://lsemarketcap.com/
8
. https://www.hl.co.uk/news/articles/busting-the-supermarket-myths
9
https://shareprices.com/lse/tscodecided to invest in Tesco in the anticipation that it will experience a similar
fluctuation throughout the week and increase by market close on Friday.
This is a less trustworthy strategy, however, so I am only investing £75 in Tesco.
Similar to Reckitt Benckiser, I find it unlikely that any announcements during the
week will cause a significant drop in share value either.
3. Aviva- £125
In the United Kingdom Aviva is the largest general insurer and a leading life and
pensions provider.
Amidst these uncertain times, households and businesses are looking for ways to
protect themselves. For example, Forbes wrote an article in late April about the
panic buying of life insurance as Coronavirus gripped the country.10 Although rather
morbid, the threat of Covid-19 to life is real, and therefore it is no surprise that Aviva
is expected to announce large increases in sales for its life insurance. Moreover, as
households increase in number, and people work from home, general insurance is
likely to see a surge in demand as well, particularly as people search for cover from
accidental damage. The group estimates £160m of additional general insurance
claims stemming from the coronavirus outbreak, after accounting for reinsurance.11
Further, although recently Aviva has seen a reduction in demand for car insurance,
as lockdown restrictions begin to ease it could be predicted that over the next week
the demand will begin to grow again in anticipation of non-essential travel being
encouraged.
A key factor for choosing Aviva is the fact that their first quarter sales are due to be
released this week. Recent speculation presumes that Aviva will be reporting
positive news as a whole for the quarter, and this should hopefully increase
confidence in the company and therefore also increase the share value.
I have decided to invest £125 in Aviva. I think choosing such a high amount is taking
a slight risk, as Aviva has seen, like Tesco, much fluctuation in its share price over the
last few weeks. However, I think the announcement of the first quarter earnings,
combined with the currently considered undervaluation of Aviva, will result in a
higher return by the end of the week.
4. J.D. Wetherspoon- £75
J.D. Wetherspoon is a national chain of pubs and hotels across the whole of the UK &
Ireland.
To diversify my investment portfolio, I wanted to include a company from the leisure
industry. Although all of J.D. Wetherspoon’s pubs and hotels are currently closed,
10
https://www.forbes.com/sites/advisor/2020/03/12/consumers-panic-shopping-for-life-insurance-in-the-
face-of-coronavirus/#3bf4dc646a6f
11
https://www.hl.co.uk/shares/share-research/202005/aviva-sales-growth-as-coronavirus-hits-capitalexpectations of lockdown being lifted, alongside advice for pubs being prepared to
open on July 4th, has encouraged me to choose them to invest in. I chose J.D.
Wetherspoon in particular as they are a leading company in the leisure sector and
are generally popular with all, regardless of a household’s income level. As I have
previously discussed, when choosing where to invest, I considered what could
change in a week. With updates daily from the government, I see a potentiality that
we may see a drastic change in lockdown procedure, with the hospitality and leisure
industry being able to open back up much sooner than expected. I predict this would
cause a massive rise in share value for J.D. Wetherspoon.
Even if this sudden announcement did not happen, J.D. Wetherspoon appears to be
a solid investment nonetheless. After recent equity placings and securing increased
debt facilities, Wetherspoons have confirmed they have sufficient liquidity ‘until the
end of November’. 12This shows that their confidence as a company is still high, even
though the pandemic is affecting their sector disproportionately severely. In fact, J.D.
Wetherspoon has a future growth forecast by annual earnings of 74.8% compared to
the industry’s forecast annual earnings growth of 35.4%. It is also considered to be at
a good value based on its price earnings ratio of 17.1 compared to the hospitality
industry average of 17.4. Overall, it is considered to be currently trading at 32.5%
below its fair value.13
Therefore, I have decided to invest £75 in J.D. Wetherspoon. Although I think the
company is in a risky sector, evidence suggests that the company is outperforming
the rest of its industry, and so should expect its share prices to increase within the
next week. Furthermore, there is a possibility of a progression within UK lockdown
this week that could cause a rapid increase in demand for J.D. Wetherspoon shares.
However, this is not too likely considering the current position of the UK with Covid-
19 and still practising social distancing measures, hence I have only invested £75.
5. Avacta Group- £150
Avacta is a biotechnology company, whose mission is ‘to shape the future of
medicine by developing safe and efficacious drugs, and powerful research and
diagnostic tools, based on our proprietary Affimer® and pre|CISIONTM platforms.’14
Biotechnology companies seem to be racing against each other to discover cures and
invent testing kits for Covid-19. Avacta is aiming to develop Affimer reagants for a
Covid-19 test after partnering with Cytiva at the end of April.15 As well as this, they
12
https://www.fool.co.uk/investing/2020/05/13/5-cheap-ftse-shares-id-buy-in-this-market-crash/
13
https://simplywall.st/stocks/gb/consumer-services/lse-jdw/j-d-wetherspoon-
shares?utm_medium=finance_user&utm_campaign=conclusion&utm_source=post&blueprint=1197030
14
https://avacta.com/about/
15
https://www.directorstalkinterviews.com/avacta-group-ships-sars-cov-2-affimer-reagents-to-cytiva-and-
adeptrix/412820223said in April that they are hoping to have done this by the end of May. 16 As the
investment period is beginning on 18th May, it is a possibility that they may achieve
this aim within the next week, which would undoubtably cause their share value to
increase significantly. They are making great progress, posting updates on their
website more than weekly, highlighting their continuous progress in finding a home-
friendly test.17 Investing in a biotechnology company was an easy decision for me
considering the pandemic we are facing and the importance of scientific progress
being made by firms such as Avacta.
Avacta has also been seeing a consistent rise in share price that shows no sign of
stopping within the next week. Their shares are up 700% in 2020 and the graph
below illustrates that Avacta seems to currently have a trajectory that only goes
up.18
Some investors agree with the projected success that Avacta is predicted to
experience, shown through more than 11 million shares being owned by Clare
Hughes, wife of Richard Hughes, co-founder of Zeus Capital, and Mahmud Kamani,
co-founder of Boohoo.com. This shows that there is a lot of confidence in the future
capacity of Avacta. They have also recently announced an agreement with ADC
Therapeutics, as well as launching a joint venture in South Korea with Daewoong
16
https://www.cambridgeindependent.co.uk/business/avacta-and-cytiva-to-work-on-test-that-can-diagnose-
covid-19-in-minutes-9105940/
17
https://avacta.com/news/
18
https://ukinvestormagazine.co.uk/avacta-shares-surge-on-covid-19-treatment-progress/Pharmaceutical Co. 19This further highlights that the total share value of the
company can only go up, as there is much expansion within the company going on.
I have decided to invest £150 in Avacta, the largest proportion of my £500. This is
because I think it is the company within my portfolio which is most likely to change
drastically within the week, due to the nature of scientific discovery happening at an
accelerated rate during these times. If Avacta was to make this progress with their
reagents for a home-testing kit by the end of the week, this could cause their shares
to increase in value rapidly. However, the possibility of this happening this week is
not completely certain. Therefore, I have decided to not invest any more than £150,
as they could experience a dip in share price if little progress is made within the next
five days.
19
https://www.cambridgeindependent.co.uk/business/avacta-and-cytiva-to-work-on-test-that-can-diagnose-
covid-19-in-minutes-9105940/You can also read
