Most of us have been staggered about how so many stocks have rebounded since the crash that bottomed on March 23. If you need reminding, Afterpay went below $10 then — $8.90 to be precise — and is now a $72 stock, and Morgan Stanley thinks we will see it with a $100 plus price tag!
But these types of stocks are usually for deep speculators and anyone who wants to buy now, for the $100-day out there, is punting along with the smarties at Morgan Stanley.
So which companies are good companies but are suffering because their businesses are directly being slugged by the virus and the associated problems for the sectors they operate in? And you have to ask the question: should I be harvesting beaten-up good businesses and simply sitting it out until normalcy returns?
Given that question, the next question to ask is: what businesses/stocks fit this bill?
A standout that you’d have to look at is Qantas. Right now, it’s a $3.50 stock but the analysts surveyed by FNArena see it having a 24.5% upside. This company is expecting to be back to overseas flying by mid-2021 and its Virgin rival is not expected to be as combative as it was under the old pre-Coronavirus regime. Remember this was a $7 stock before COVID-19.
At the same time, Flight Centre was a $44 stock in January and today languishes at $10.54, but the sellers of this stock are not one-year waiters and it’s fair to say that this business could be troubled for two years. That said, the analysts are targeting only $13.13, which would be a 24% gain, however, these guys are not thinking long term.
Flight Centre (FLT)
In the same stable, Webjet (WEB) is now a $3 stock and is tipped to see a 35% gain to reach $4.07. But before the Coronavirus came to town, this was a $14 stock!
If Webjet sees the old world come back, there would be a 366% gain for anyone who was prepared to take the gamble.
I know Paul Rickard worries about the viability of Flight Centre and Webjet in these crazy times but news last week suggests others think the latter has a future. The company received an injection of cash via a €100 million convertible note sale. The company now has an extra $160 million in net proceeds to keep the flag flying until normalcy returns to overseas travel, where the business makes most of its money.
OK, let’s dial down the sector risk and go looking for businesses that are negatively exposed to this damn virus for different reasons.
Harvey Norman (HVN)
Before COVID-19, Harvey Norman was a $4.80 stock and now is $3.52. If in a year it could regain its old price, that would be a 36% gain! The analysts expect a 13% gain but they’re not taking a one-year guess when you imagine the Australians who used to spend a lot of money overseas.
In 2018-19, more than 10 million Australians took overseas trips and these people spent $65 billion. Imagine if only half of that is spent here, then I suspect stores like Harvey Norman (HVN), JB Hi-Fi (JBH) and say Nick Scali (NCK) are bound to have good years.
If Nick Scali can get back to its pre-Coronavirus share price from where it is now — $6.50 — that would be a 27% gain.
A company like Charter Hall (CHC) is tipped by the analysts to rebound by 9% from its current $9.52 level but previously it was a $14 stock, implying if normalcy eventually returns then there could be a 57% gain. And this is regarded as a very good business.
In coming weeks, we’ll go looking for the ‘honest John’ reliable businesses that have been virtually ignored in this Coronavirus comeback for the stock market.
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