The stocks that will profit during the summer of strikes

Could you bag a bargain on companies battered by industrial action? Lauren Almeida reports

L‘Royal Mail was a winner during the pandemic but has seen its share price halve since the start of 2022’

ondon has been one of the most reliable corners of the global stock market this year, thanks to supercharged returns from its oil companies. But experts have warned that Britain’s summer of chaos could hit stocks hard in the following months as strikes, staff shortages and rising food and energy prices threaten UK plc.

The FTSE 100, which tracks the largest companies listed in London, has lost just 2pc of its value this year. But the FTSE 250, which tracks medium-sized businesses and is a better barometer for the British economy, has sunk by 17pc.

This end of the spectrum looks most dangerous – and is home to stocks favoured by DIY investors. Rob Burgeman, of the wealth manager Brewin Dolphin, highlighted Royal Mail, where more than 115,000 workers voted for industrial action this month.

Mr Burgeman said: “Royal Mail is a people-heavy business and, with union membership relatively high, it is always prone to strike action. The company was a winner during the pandemic but has seen its share price halve since the beginning of 2022.”

However, the consensus among City analysts is that the shares could climb by as much as 42pc. Analysts at Berenberg, the bank, said that in part due the short-term impact of the strike action, the shares remained cheap.

Berenberg’s William Fitzalan Howard said: “Royal Mail’s profitability has been substantially rebased by the pandemic and is now largely driven by parcels rather than letters, which we think is an improvement.

“Parcels increase the growth of the business and relieve some of the pressure from mail volume declines.”

Telecoms giant BT is another favourite of DIY investors that analysts expect to be hit hard by Britain’s summer of strikes. Tens of thousands of workers have voted to walk out on July 29 and Aug 1 for the first time since the company was privatised in 1984.

The shares have lost 12pc in the past year over concerns around a tighter regulatory environment, its deteriorating pension deficit and expensive network improvements.

But Carl Murdock-Smith, also of Berenberg, said shares in BT looked too cheap. They trade at a price-to-earnings ratio – which measures how expensive a company’s share price is relative to its net profits – of just 10, compared with a sector average of 18.

He added: “BT has a strong position in Britain’s telecoms market as an owner of both a fixed and a mobile network. It has fixed connections into 32 million premises, with no infrastructure competition in around half of them.”

Mr Burgeman identified easyJet as another popular stock that had been hit by a triple whammy of staff shortages, strikes and surging fuel costs. Once tipped as a way for investors to profit from the reopening of the economy after the pandemic, the airline has instead been caught up in travel chaos, which has cost the business £133m in the past three months alone.

Meanwhile, JD Wetherspoon and Greggs have been hit by staff shortages as well as surging energy and food prices. Mr Burgeman added: “Greggs has been another victim of the economic pressures this year. The bakery chain warned about staff shortages last October and the shares are down by more than 40pc.”

However, market consensus suggests that investors could still profit from all three stocks’ potential to bounce back when the economy improves. Dan

Boardman-Weston, of the wealth manager BRI, said: “Over the past 40 years FTSE 250 companies have massively outperformed the FTSE 100 because they are more dynamic and faster growing,” he said. “They may be more sensitive to the economic challenges that Britain is facing at the moment, but over the long term they have proved to be better for growth.”

But Andy Merricks, a fund manager at 8AM Global, advised investors looking for more stable growth for the remainder of the year to turn back to the American stock market instead.

“The ‘ value’ revival at the start of the year, which buoyed unloved British stocks, is done. The rotation has run its course and a recession looks very likely. Investors will now start turning back to defensive companies with steady growth.”