Top recovery stocks on the FTSE 100

Since the UK government unveiled its roadmap for reopening the economy investor sentiment is beginning to improve, so IG has identified some of the top recovery stocks to watch as the market picks up.

Since the Covid-19 pandemic caused the FTSE 100 to fall 34%, the blue-chip index has started to show signs of a meaningful recovery, climbing 24% after hitting a low of 4993 points in March.

The FTSE 100 has benefitted from the UK government unveiling its roadmap for reopening the economy, which has lifted investor sentiment. With markets picking up, IG has picked out some key growth stocks that could see significant gains as the world slowly emerges from lockdown.

Diageo

The maker of brands like Guinness and Johnnie Walker has naturally struggled as pubs and restaurants shut their doors due to government-imposed lockdowns. But consumers thirst for alcohol has not diminished, with supermarket sales seeing a sharp increase as people stock up on essentials in lockdown.

Diageo has been impacted by the Covid-19 pandemic, with its stock down 6% year-to-date. However, the drinks maker continues to outperform the broader market, with the FTSE 100 down 18% over the same period.

As the global economy shows signs of emerging from lockdown, analysts at Barclays remain optimistic that Diageo will have a stronger recovery than most, with the bank reiterating its ‘overweight’ rating for the stock and setting a target price of £32.30 per share – implying a potential upside of 8.5%.

Diageo closed at £29.54 a share on Thursday.

Lloyds

The UK lender is looking cheap, with its share price finding support at 30p levels after losing 50% of its value amid the economic fallout from the coronavirus pandemic.

As expected, Lloyds delivered a disappointing set of first quarter (Q1) figures, with profits down 95% after the bank was forced to take a £1.4 billion charge to cover a surge in bad loans as a result of the Covid-19 crisis.

Despite this, Lloyds remains the top pick among analysts covering the UK banking sector, with Citi issuing a target price of 42p, implying a potential upside of 31%.

The rationale behind analysts assessment of Lloyds comes down to the bank’s relatively healthy balance sheet, well-discounted asset quality risks and its likelihood of emerging from the Covid-19 crisis in a far stronger position than its rivals.

AstraZeneca

The drug maker continues to steady gains this year, up 13% year-to-date, with stock climbing 4% on Thursday after it announced that it is trialling one of its diabetes medications as a potential treatment for coronavirus.

Earlier this week, AstraZeneca received $1.2 billion from the US health department to develop, produce and deliver AZD1222, a potential Covid-19 vaccine it is working on in partnership with the University of Oxford.

The drug maker has already finalised manufacturing agreement to produce 400 million doses of the vaccine. Securing a partnership of this nature not only puts some daylight between it and rival GlaxoSmithKline, but could help AstraZeneca grab a slice of a $60 billion a year vaccine market.

As such, analysts remain upbeat about the stock’s performance in 2020, with AstraZeneca boasting eight ‘buy’ recommendations, two ‘hold’ and one ‘sell’.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

Spread betting CFD trading Share dealing
Action Buy £160 per point Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £2000 £10,000
Total fees £20.88 £20.88 £16

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.

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