E-grocer Ocado (LSE: OCDO) was the biggest FTSE 100 gainer in Friday’s trading. It is up by 7.1% as I write, followed at a distance by the second biggest gainer Royal Mail, which is up some 3.5%. This was surprising for a stock that has struggled for much of the year.
A positive association with Marks & Spencer
What has brought this on? There are a few developments, as far as I can see. The first seems to be speculation that the retailer Marks & Spencer (M&S), for which it does a whole lot of order fulfilment business, is planning to buy out that part of Ocado’s business. There is no official statement on this as far as I can tell, so far.
But concerning M&S, I reckon that there is some serious good news in any case. The retailer, which had been languishing for years, has made quite the turnaround this year. For the half-year ending 2 October, the company reported a 31% increase in net profits from the last pre-pandemic year of 2019-20 earlier this month. It also raised its profit expectations for the full year. I think this bodes well for Ocado as well, which depends on the retailer’s success for its own.
Ocado backs Bitcoin
Another reason for its rise could have been news that it will give cash back to customers in bitcoin. It will be among 40 retailers including Boots and Homebase to do so. Considering the rising popularity of cryptocurrencies, I reckon that this news could have attracted some investors to the stock as well.
Lockdown could be a positive for the FTSE 100 stock
But by far, I reckon that the biggest reason for Ocado’s runaway rise today is because of lockdown news. Austria has gone into full national lockdown again as coronavirus cases rise. And media reports say that Germany could follow suit. So far, the UK has done better. But cases are rising, so who knows?
Ocado was a big gainer in last year’s lockdowns as we stayed at home and ordered in to keep safe. The stock touched all-time highs as the company showed a spurt in performance. However, ever since the pandemic situation has eased this year, the stock has been sliding down.
What I’d do
But if all or at least some of these developments are indeed true, I reckon it can turn its performance around before year-end. In any case, on average, its price in 2020 is still higher than it was in 2019. I bought the stock a while ago because I think it is really geared for the world of shopping we are now entering. More of our purchases will be made online in the future and Ocado already has a leadership position in that segment that is strengthening further.
It is a loss-making company, which can be a downer, but I see that as the price of being a high growth stock. I could even buy more of Ocado’s shares now and hold them for another 10 years.
Manika Premsingh owns shares of Ocado Group and Royal Mail. The Motley Fool UK has recommended Ocado Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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