Buying on the dip: investors pile in to stocks ripe for a recovery
Lockdown is lifting, so why not snap up the companies that are ready to bounce back
David Brenchley, Saturday March 13 2021, 12.01am, The Times
Investors have been taking advantage of whipsawing markets as they buy on the dips in share prices to snap up tech funds and stocks that are expected to benefit from the end of lockdown.
Shares in some “pandemic winners”, such as the video conferencing app Zoom and the electric car maker Tesla, suffered a sharp reverse over the first ten weeks of 2021 as US markets fell.
Fears over the potential impact of higher inflation on earnings led to a fall of 10 per cent on the US Nasdaq Composite stock index, which features many tech companies, and a drop of 4.2 per cent for the broader S&P 500.
Tech companies have been hit hardest because they are valued on future profits rather than current sales. Any rise in inflation would be compounded over time, so earnings delivered in ten years would suffer far more damage than earnings from the next year or two.
UK savers have suffered in the first two months of 2021 because some of the most popular investment trusts are exposed to tech companies. Scottish Mortgage fell 28 per cent, Edinburgh Worldwide 27 per cent and Allianz Technology Trust 23 per cent.
James Carthew from the research company QuotedData, thinks that the correction in the markets was probably healthy, considering that some growth stocks had been trading on “stretched valuations”.
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