The best ASX stocks to buy for the COVID-19 recovery play

Investors may need a change in investment strategy if they want to make the best returns from ASX stocks in the post COVID-19 world.

| More on:
road in the country with word recovery printed on it

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors may need a change in investment strategy if they want to make the best returns from ASX stocks in the post COVID-19 world.

The resumption of clinical trials testing the University of Oxford/AstraZeneca vaccine is fuelling hope that treatment can be available in early 2021.

Global bull markets will likely find a second wind as this turns into a reality but it won’t be the COVID-19 ASX outperformers that will lead the next charge.

Best ASX stocks to buy are the biggest COVID losers

The stocks that have so far outperformed the S&P/ASX 200 Index (Index:^AXJO) are those that profited from the socially distance environment.

These include the likes of the Afterpay Ltd (ASX: APT) share price and Kogan.com Ltd (ASX: KGN) share price – just to name a few.

If an effective vaccine is found, it’s the biggest coronavirus losers that will come roaring back. Macquarie Group Ltd (ASX: MQG) asked its analysts which of the ugly ducklings are most likely to blossom into a swan, and they hatched four ideas.

A healthy COVID-19 recovery stock

The first is the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. The hospital operator is the top pick in the health sector as there is a notable improvement in surgical activity outside of lockdown central Victoria.

The nationwide lockdown had forced many routine hospital procedures to be postponed but the resumption of surgeries is only one tailwind for Ramsay.

“Opportunities for increased interaction with the public system in order to reduce public waiting lists have been highlighted both in Australia and the UK,” said Macquarie analyst David Bailey.

“In addition, activity levels in France/Nordics were ahead of expectations in June (with a positive result for the month).”

A winning bet

Another stock that’s tipped for a re-rating is the Star Entertainment Group Ltd (ASX: SGR) share price.

Casino operators have been among the hardest hit from the pandemic and Star Entertainment is the best one to bet on in this sector, according to Macquarie analyst David Fabris.

The stock enjoyed a number of favourable outcomes recently, including a 20-year casino slot exclusivity for Star Sydney and securing Gold Coast exclusivity at no cost.

Tasting the recovery

Meanwhile, the top pick in the consumer space is the United Malt Group Ltd (ASX: UMG) share price. COVID restrictions had a big impact on on-premise alcoholic consumption but there has been month-on-month improvement in volumes since April.

“COVID-19 is having a short-term impact on beer volumes given the restrictions to on-premise. Sequential improvement in volumes at a modestly faster pace than expected is pleasing to us,” said the broker’s analyst David Pobucky.

“UMG also still looks attractive relative to global brewer peers, trading at a 4% discount, although the discount has narrowed recently.”

Defensive growth play

The Sealink Travel Group Ltd (ASX: SLK) share price is the fourth pick even though the stock performed better than most through the COVID-19 mayhem.

“SeaLink’s share price strength in recent months is reflective of its defensive earnings from public transport and commuter businesses,” said Macquarie analyst Marni Lysaght.

“While we continue to find such characteristics appealing and a key reason for exposure to SeaLink, we have high conviction of further upside being realised.”

This conviction is driven by contract wins, acquisition opportunities, bus contract renewals, further opportunities from social distancing and the reopening of domestic and international borders.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Cheap Shares

A man reacts with surprise when her see a bargain price on his phone.
Cheap Shares

‘Capital light and scalable’: Expert picks 2 ASX shares to buy now while CHEAP

Who likes bargains? Pick up these beauties from the discount bin, says one financial advisor.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Cheap Shares

2 ASX shares to buy that have halved this year

Investors must avoid anchoring to the past, and instead buy stocks that have potential from now onwards. Here's a couple…

Read more »

a man in a green and gold Australian athletic kit roars ecstatically with a wide open mouth while his hands are clenched and raised as a shower of gold confetti falls in the sky around him.
Cheap Shares

Buy this ASX share that’s 80% cheaper than a year ago: expert

This company is not only growing rapidly, but is in an industry that traditionally withstands economic downturns.

Read more »

Happy healthcare workers in a labs
Cheap Shares

‘Simply too cheap’ ASX share that could plough ahead in a recession: expert

Healthcare is hot this month, but this particular stock is still down in the doldrums. One fund manager likes the…

Read more »

A man thinks very carefully about his money and investments.
Cheap Shares

Why I think these 2 ASX shares are trading at bargain basement prices

Looking for cheap ASX shares? I think these two businesses are good value.

Read more »

ASX bank shares buy A young boy in a business suit giving thumbs up with piggy banks and coin piles
Cheap Shares

3 ASX shares to pounce on after tax-loss selling: report

This trio of stocks could be bargain pick-ups after investors dump them in the traditional end-of-financial-year tax minimisation run.

Read more »

Galaxy Resources capital raisegrowth in asx share price represented by multiple hands all placing coins in a piggy bank
Broker Notes

Are these 2 beaten-up ASX shares too cheap to ignore in June 2022?

Accent Group is one of the ASX shares that experts think is cheap.

Read more »

A man in a business suit wearing boxing gloves slumps in the corner of a boxing ring representing the beaten-up Zip share price in recent times
Broker Notes

2 ASX shares experts think have sold off too much

Which stocks have seen their value plummet even though the underlying businesses have not changed one iota? This pair.

Read more »