By Geoffrey Smith
Investing.com -- Europe's economy is stalling again as rising numbers of Covid-19 infections interrupt the return to normal life. As a result, the stocks that benefited most from the first wave post-pandemic buying are getting a new lease of life.
Everywhere where the virtual world is displacing the real one, there are fresh signs of momentum, even though the summer rally has already stretched valuations to levels more akin to Silicon Valley's. Take Ocado (LON:OCDO), the company whose software powers an increasing number of food retailers' warehouses. Ocado stock doubled between February and May, as it became clear that the pandemic would accelerate the transition to online food shopping and delivery. It then went nowhere between May and August as the public health situation improved. But in the last two weeks, it has surged another 26%, as investors have started to factor in another winter of coronavirus.
As well they might: U.K. Prime Minister Boris Johnson indicated that the new restrictions on social contact that his government imposed this week are likely to run for six months. Ocado has also been helped by a trading update that showed sales running ahead even of its own expectations, with the British public reacting very favorably to its joint venture with Marks & Spencer's food business.
Or take Adyen, the Dutch-based payments company that counts Uber (NYSE:UBER) and Netflix (NASDAQ:NFLX) among its biggest customers. Ever since it went public, Adyen has been the subject of pursed lips and frowns for having the kind of valuation that European stocks just don't usually get. But its profile begs for it to trade at a Nasdaq-style premium, and so it does. At Wednesday's closing price, it trades at 12 times trailing 12-month sales, and a cool 453 times 2019 earnings.
Adyen stock hasn't even paused for breath in the same way that Ocado did, and yet it's still up 21% since the end of August.
Italian payments group Nexi (MI:NEXII) has also gone from one all-time high to another, lifted by the by now almost banal proposition that the pandemic will accelerate the trend to electronic payments, and by constant suggestions that it is an inevitable acquisition target for those, such as Worldline (PA:WLN), who are trying to build a cross-border European payments champion.
Away from the continent's bigger boards, Norway's Adevinta (OL:ADEV), a specialist in building digital marketplaces, has also broken out to post new all-time highs this week after plateauing in the summer.
All of the above were already considered 'crowded trades' by most even before their last leg up. But economic conditions returning to those that provided the fuel for their initial rally: IHS Markit's purchasing managers index for the euro zone showed how its consumer-facing services that weakened most in September as the continent's second wave of Covid-19 started to build. It would seem reckless to bet against lockdown stocks now.