With fears of the Omicron Covid variant rampant, markets across the world look bloodshot. Although the FTSE 100 has opened strongly today, I think a return to peak-pandemic market fears is still a real concern. Most investors learnt a valuable lesson from the first Covid market crash and are now aware of the elasticity of tested indices like the FTSE 100.
While leaders have reinstated the mask policy and travel restrictions, the emergency G7 meeting today could force the government to restrict public movement as nine Omicron cases have been identified in the UK. Although I think a Christmas lockdown is unlikely, I would be unwise not to prepare for the worse. Here are two UK shares that I’d buy in the case of another lockdown.
Essentials supergiant
If another lockdown is likely, I think Tesco (LSE:TSCO) is a no-brainer. Although I do not expect the restrictions to be severe or long-lasting, the supermarket chain would become an essential business if we are restricted indoors again. Also, the business has been very stable across 2021, holding on to the consumers it gained during the pandemic. In the last six months, Tesco shares are up 24% (though down around 2.5% across the last 12 months).
Despite these six-month returns, I wouldn’t consider Tesco shares under normal market conditions. I think there are better investment options. The supermarket sector has been operating under razor-thin margins and fear of being undercut by discount retailers. Also, the Amazon invasion has hit the supermarket sector, with the multinational company increasing its physical store presence globally.
However, Tesco utilised the last lockdown to improve its home delivery service in the UK. If the government decides to impose certain restrictions, I think public spaces, including restaurants and bars, will be closed. And this could cause a temporary surge in sales for Tesco. Also, Tesco shares look very cheap at the current price of 280p, trading on a price-to-earnings growth (PEG) ratio of 0.1. I would consider Tesco shares if a Covid-driven market crash becomes inevitable.
Gaming growth stock
Team17 Group (LSE:TM17) is one UK stock I have been following ever since the 2020 gaming boom. The industry gained a lot of momentum the last time we were forced indoors and I expect a similar reaction from investors this time around. With the Metaverse gaming project gaining traction, the gaming industry is trending towards virtual, collaborative world-building games. The popularity of multiplayer games is exciting for TM17. Its focus and most successful titles have been in this genre.
When I look at TM17’s market performance over the last 12 months, things look bleak. A 20% fall in share price in a year might be alarming at first, but I think it was expected after the 2020 gaming boom. Looking at the core financials, TM17’s Return On Capital Employed (ROCE) stands at 23%, higher than the industry average. I see this as a positive sign for the company, which has a large pool of insider investors as well.
However, the gaming space is incredibly unpredictable at the moment and in such a fast-evolving space, it is hard to maintain stability. Large investors are still sceptical when it comes to gaming companies and prefer the most tested avenues. But I am very optimistic about the space and, if we face an Omicron lockdown, I think TM17 offers a good option that I would hold for the long term.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Tesco. 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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