Over the past few days, it’s dawned on me that the situation regarding coronavirus is unlikely to change anytime soon. Like many others, I thought that by now we would find ourselves opening up our own borders. Then opening up to New Zealand, and then slowly to the rest of the world.

However, the recent surge of coronavirus infections in Victoria has forced us to temper our expectations on how quickly we can open up the economy and our borders. If we’re going to continue managing this pandemic successfully, then potentially we may need to be taking two steps forward and one step back for some time.

While none of us can do anything about this, we can definitely shape our investment portfolios to reflect our circumstances. So on that note, here are some of my thoughts.

Sectors to consider for your investment portfolio

Local travel

I believe that Alliance Aviation Services Ltd (ASX: AQZ) is likely to be the only airline to deliver anywhere near decent earnings over the short term. This company recently forecast a year-end profit before tax of $40 million. The core business of Alliance Airlines is providing charter flights and servicing fly-in fly-out workers. Demand for these services increased during lockdown restrictions as travellers were forced to comply with social distancing requirements.  

Alliance Airlines’ recent award of flights to the Whitsundays by the Queensland Government further reinforces my optimism surrounding this Aussie airline. Alliance is structured as a nimble organisation with a low cost base. If we do have to live only with domestic tourism for a while, I believe the company will prosper. Conversely, an organisation like Qantas Airways Limited (ASX: QAN) is just too big to survive on local flights alone.

Another potential beneficiary of an increased concentration of local travel could be Bapcor Ltd (ASX: BAP), a distributor of car parts and services. If, for the time being, most travel will be local, it stands to reason much of it will be by car. This definitely appears to be increasing demand for Bapcor’s automotive parts, accessories, equipment, and services. Back in March, when the lockdown commenced, Bapcor still managed to deliver an 11.5% growth in revenue against the previous corresponding period.

Discretionary items

I think ongoing work-from-home requirements will mean continued solid sales volumes for retailers like Bunnings and Officeworks; businesses owned by Wesfarmers Ltd (ASX: WES). Wesfarmers also owns Catch, an online marketplace it recently purchased. Catch has increased its sales turnover by 68.7% in H2 FY20 so far against the previous corresponding period. This is in line with other online sales businesses like Kogan.com Ltd (ASX: KGN).

Another interesting internet sales story has been City Chic Collective Ltd (ASX: CCX). On 25 May, the company declared that two-thirds of its sales came from online channels. Moreover, it announced a 57% increase in online sales during the company’s store closures versus the same period last year.

Payment processing

Depending on your investment horizon, it may still be too soon to invest in shares like Commonwealth Bank of Australia (ASX: CBA). In fact, I would be cautious of any shares with exposure to the long-term credit commitments of the general public. With higher unemployment and uncertain economic conditions, I believe fewer people will be seeking long-term credit arrangements.

In addition, as the nation’s largest bank, CommBank is also potentially facing the biggest impact of defaults on housing and business loans. Moreover, there is an underlying trend away from credit cards, particularly among millennials. 

Nonetheless, I think short term credit organisations like Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are likely to continue to do well. Particularly those that are light on credit checks. 

Payment processing companies like Tyro Payments Ltd (ASX: TYR) are also destined to continue performing well, in my opinion. Tyro has a network across many small and medium enterprise companies, many of which have already re-opened. Furthermore, the company has increased YTD earnings by 16% against last year during April and May, despite lockdowns restrictions.

In just a few years, Tyro has catapulted itself to be the largest EFTPOS provider of all authorised deposit-taking institutions (ADI) outside of the big four banks.

Foolish takeaway

The resurgence of coronavirus cases in Victoria this week suggests the recovery is not going to play out the way we might have hoped. Nonetheless, the market continually provides us with opportunities.

I recommend pivoting an investment portfolio towards companies with strong online sales capabilities, or those which have thrived during the lockdown. In addition, look for companies that do not require a full re-opening of the Australian or international economies in order to thrive, such as the buy now, pay later providers.

More reading

• Best growth shares to buy with $4,000
• Forget term deposits! These ASX dividend shares are better
• 5 things to watch on the ASX 200 on Wednesday
• Afterpay share price on watch after reaching 1 million UK customers
• Where to invest $500 into ASX shares right now

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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On Tuesday the Coles Group Ltd (ASX: COL) share price climbed 0.5% higher to $16.67.

This latest gain means the supermarket giant’s shares have now risen a sizeable 11% since the start of the year.

This means Coles’ shares are vastly outperforming the S&P/ASX 200 Index (ASX: XJO), which is down 11% over the same period.

Is it too late to buy Coles’ shares?

I don’t believe it is too late to invest in Coles. Although its shares have been strong performers this year, I believe they are still good value. Especially in comparison to its arch rival Woolworths Group Ltd (ASX: WOW).

At present, I estimate that the Coles share price is trading at a little over 21x FY 2021 earnings, whereas Woolies is trading closer to 26x FY 2021 earnings.

Another reason to be positive on Coles is its dividend. I expect Coles to provide investors with a fully franked 3.9% dividend yield next year. For Woolworths, I’m expecting a fully franked 2.9% dividend yield in FY 2021.

I’m not the only one that is positive on Coles. After looking through recent updates by Woolworths and Metcash Limited (ASX: MTS), this morning analysts at Goldman Sachs reiterated their conviction buy rating and $18.60 price target on its shares.

This price target implies potential upside of 11.6% for its shares over the next 12 months or 15.5% including dividends.

What did Goldman Sachs say?

Goldman appears confident that Coles will finish FY 2020 strongly and has revised its sales forecasts higher. And while it does have concerns over margin pressures, it feels Coles is better positioned to limit the damage.

The broker commented: “While the sales trends remain strong across the industry, margins have underwhelmed but the outlook for margins over the remainder of CY20 look supportive. We revise 4Q20 LFL growth for the Food division to +8.5% and for the Liquor division to +8%, reflecting the stronger than expected industry growth trends.”

“Over 2H20, we anticipate COL’s cost out program and earlier timing of EBA implementation will limit the downside to margins compared to that anticipated by WOW’s update. We have revised 2H20 Food EBIT margins from 4.2% to 4.0% (+10bps on pcp). Overall, FY20 Food EBIT has been reduced by -1.6% and Group EBIT by -1.5%. We revise pre-AASB16 FY20 EPS to A$0.71, -1.5%,” it concluded.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX supermarket shares on the radar
• ASX 200 Weekly Wrap: ASX back in the green
• 3 high quality ASX dividend shares for income investors to buy
• These 3 ASX ETFs are yet to recover from the market crash

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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.

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