6 Experts Say “Watch These ‘Coronavirus Crisis’ Stocks”
By Sam Volkering
When the Lockdown Ends
6 Experts Say “Watch These ‘Coronavirus Crisis’ Stocks”
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You don’t often get “Black Swan” events that rip the markets apart.
But when you do, investors usually fall into one of two camps.
You pack up your toys, cash up, sulk off and moan about it for the next decade.
You take a rational approach to what’s happening, properly assess the markets, figuring out where the bargains might exist and where to put your money for the long term.
There are ways to play markets on the up and on the down. But Black Swan events are rarely seen coming, and when they hit they hit with such vigour and force it can turn the average investor away from the markets for years.
But the smart minds always look for opportunity in all market conditions.
And that’s what I asked our editorial brains trust at Southbank Investment Research to do. I see opportunity in the market. And events like we’ve seen in 2020 get me more excited than when we’re in the midst of a wild bull market.
I love conditions like this because the stockmarkets become a hunting ground for great companies. While some of these companies may be great, they’re not immune to risk or volatility. And they may have taken a savage beating for no good reason other than macroeconomic factors, like a global pandemic.
And that screams “OPPORTUNITY!”
But how do you, as an investor, recognise what’s value, what’s an opportunity and where there might be some upside to take?
Well that’s why I’ve asked our editorial experts at Southbank Investment Research for their input. I asked them a simple question:
If you could pick one stock you think investors should be looking at amongst this coronavirus “peak fear”, what would it be?
Now asking the smartest people I know to pick just one stock investors should be considering is hard. I know I personally have added about a dozen stocks to my own watchlist so far this year.
But they’ve done it. And to their credit, I think this report shows you the kind of great insight our editors provide in our free e-letters and in our investment advisory services.
Below you’ll find a single stock from myself, James Allen, Nick Hubble, Kit Winder, Boaz Shoshan and Eoin Treacy that we believe investors should be looking at and investigating further. We see these stocks as potential opportunities should the markets should turn back higher.
The aim here is to get you thinking about the kinds of stocks that most investors probably wouldn’t even consider in such a market rout. These aren’t recommendations – each has a large degree of risk that need proper consideration and other factors you should always take into account before investing.
But these are all stocks we’ve been looking at and researching, that we think you should be researching as well.
So, without further ado, here’s six “coronavirus crisis” stocks to explore today!
Sam Volkering – Aston Martin Lagonda (LSE: AML)
Aston Martin is one of the most tragic stories of 2018 and 2019. And thanks to the market capitulation in March 2020, it got worse.
It’s an historic British car marker that since listing in October 2018 has been smashed from pillar to post.
And rightly so.
It’s struggled to maintain cost competitiveness, struggled to deliver growth, brought on debt and looked like it was heading into oblivion (again).
On listing in October 2018 the stock price sailed down from £19 to around £5.47 at the start of 2020. Then coronavirus hit. And it got worse because its big market opportunity was…you guessed it, China!
Intraday trading during the “Market Mayhem of March 2020” saw AML drop under £2 for the first time.
But not all hope is lost.
Canadian luxury brand billionaire Lawrence Stroll picked up a huge chunk of Aston Martin in January. He injected around £182 million to help turn the flagging British car maker around. Stroll will take on the role of executive chairman too.
Stroll also owns the Racing Point Formula One team. That’s important because in 2021, Stroll is rebranding Racing Point. For the 2021 season onwards the team will be the Aston Martin F1 Team.
You’ve now got a luxury brands billionaire leading a new strategy for a struggling, yet iconic British car maker. It’s also aiming to hit the heights of Formula One, taking head-on Ferrari, McLaren and Mercedes-Benz.
My view is that Stroll’s given himself a red-hot chance to turn this brand around. Make Aston Martin more like Ferrari. Not a car company, but an aspirational luxury brand.
Combine that with the coronavirus market smashing and I think Aston Martin is one stock all investors should be looking very closely at in 2020.
James Allen – SolarEdge Technologies (NASDAQ: SEDG)
SolarEdge Technologies makes solar inverters. Inverters convert the electricity solar panels create into a form that’s useable by everything in your home. And with 60.5% of the US market (as of Q3 2019), SolarEdge is the market-leading inverter manufacturer.
The reason for its success is largely due to a vastly superior market offering compared to its competitors. Up until recently, the majority of household scale solar panels used something called a string inverter. And these string inverters have one major drawback.
That is, they can only produce as much electricity as the least productive solar panel. So, if just one solar panel moved into the shade, it creates a huge bottleneck for electricity production, making it less cost-effective for a typical homeowner to power their home.
Up until now, this has been a major sticking point preventing a solar panel-powered home from being affordable for the typical homeowner.
That’s where SolarEdge comes in.
SolarEdge manufactures a type of solar inverter that is vastly superior to the string inverter. Its inverters optimise the power of each solar panel individually, so next to zero electricity production is lost. Previously its power optimisers were only cost-effective on industrial scale installations. But in recent years SolarEdge has reduced its cost to manufacture to a point where it is now viable to be used on residential-scale installations.
This has had huge implications for both the solar panel industry and SolarEdge.
First, the use of more efficient inverters has brought the price of solar modules down to a point where it is now cheaper to power your house with solar than it is with fossil fuels. And, importantly, that’s without any government subsidies whatsoever.
Second, SolarEdge is the market leader of an innovation driving this drop in price. This has meant that its market share of the US residential market has grown from just 1% in 2012 to over 60% in Q3 2019. It’s positioned perfectly to profit – and grow its earnings – substantially as a result of this exponential growth we’re seeing in the solar PV market.
Earlier this year, the Israeli-based solar energy company saw its market cap break through the $6 billion barrier mark after it reported strong fourth quarter and full-year 2019 results.
The company reported record revenue of $418.2 million in the fourth quarter, up 2% from $410.6 million in the preceding quarter and up 59% from $263.7 million in the corresponding quarter of 2018. Total revenues in 2019 was $1.43 billion, up 52% from $937 million in 2018.
However, it’s been hit hard by the economic fallout of the coronavirus, with the share price dropping from over $143 on 20 February to under $100. With the company itself forecasting Q1 revenues in the range of $425 million to $440 million, the stock is now firmly within screaming-buy territory.
Kit Winder – Sony Corp (NYSE: SNE)
Sony, for me, is like the Apple of Japan. Its products covers so many bases, and its devices produce synergies almost like Apple. They link and support one another. Ownership of one increases likelihood of purchase of another.
You buy a Sony PlayStation, connect it to your Sony Bravia TV, play your Sony-owned game on it, while listening to music on your Sony SRS-X33 speaker using your Sony Xperia phone.
Thinking you’d better get some fresh air at some point, you take your Sony camera outside for a walk, taking your Sony headphones with you of course. You get the point.
It covers all the bases of millennial desires and has started to do so with very high quality products.
When I ask keen photographers which camera to buy, they say Sony. Same with speakers, and PlayStation’s superiority almost go without saying (sorry Xbox fans).
It’s also a big player in the image sensors and virtual reality (VR) game, both of which will be huge as autonomous driving picks up (lots of high-level instant imagery required), and VR will surely do well out of the stay-at-home coronavirus crisis.
Sony Corp has grown revenues healthily, while margins improved, since 2011 (in yen terms). That was its low point, which required the company to cut its dividend entirely, and that’s when the share price bottomed.
After a difficult period at the start of the noughties, some more aggressive and clinical management led to a streamlining of the business, cutting it down to its more profitable core, and the results now show.
As a result, its share price has climbed steadily since then, especially since 2014 when it reinstated its dividend (having cut it to zero in 2012).
But, in the recent market panic, it has fallen back from a high of $73 to around $51 dollars as of the time of writing.
So, its products are now high quality, selling well, margins are good and revenues/earnings are growing. Non-profitable businesses have mostly been cut away, and investors have started to regain confidence, but even so it’s now trading at a price-to-earnings ratio of around 10, having peaked at around 14.
The current market turmoil is a great opportunity to buy into a high-quality business that is on the up and will enter the next cycle in much better shape than the last.
Nick Hubble – Alamos Gold Inc (NYSE: AGI)
My top tip would be Alamos Gold Inc (NYSE: AGI). For a simple pair of reasons…
It has no debt and is a gold miner. This is a killer combination during a financial crisis.
The gold price tends to fall at the outbreak of a crash in the stockmarket. That’s because the price of gold is set in the futures market, which features speculators and traders. They panic liquidate their gold positions as the price of everything else is falling too.
This drop in price, combined with the outbreak of a financial crisis, entices physical gold buyers. And that in turn leads to physical gold shortages at bullion dealers around the world. Just head to your local one today to find out how long you’ll have to wait to get your gold.
For any other commodity, the price should rise to reflect the shortage. But that takes time for gold because of the futures action. As an aside, this is a bad time to buy gold because the premiums will be huge as the physical gold price diverges from the futures market price.
Gold also stocks get slammed at the onset of a crisis because of the falling gold price. And for an additional reason. They require debt to survive. And financial crises are bad times to be reliant on debt. Those gold miners who can’t refinance themselves fall by the wayside. As do their shareholders.
But Alamos doesn’t have any debt. And it does have a lot of gold. Which means, when the gold price begins to reflect the reality instead of the futures price, Alamos will be around to soak up the benefits. Hopefully after having acquired some prime assets from other gold miners who struggled with their debts…
The recent annual results saw Alamos raise its dividend by 50%, after doubling it from 2018. The share price is at the same level as 2008, despite the gold price doubling since then…
When the gold price surges as it does after the peak of a financial crisis, Alamos’ share price will skyrocket.
Boaz Shoshan – Kratos Defence & Security Solutions (NASDAQ: KTOS)
Top Gun is coming back – but Maverick ain’t in it…
In recent years you’d be forgiven for thinking the US military was more of an anti-terrorist force more than anything else – following the fall of the Soviet Union, the Americans sure do appear to have taken the “World Police” title to heart.
But that’s all changing – as you may have noticed with the decision to withdraw from Afghanistan earlier this year. We are now returning to what the Pentagon calls “great power competition“.
I call it Cold War II, but call it whatever you like, it means there’s going to be arms races and vast budgets spent on getting ever deadlier kit. Deadlier kit with a 21st century twist.
You’ll likely be familiar with the image of the Predator or Reaper drones flying over the Middle East. While these are good for anti-terror or anti-insurgency operations, they are not very effective against other nations military forces. In fact, they’d be sitting ducks against the airforce of a developed military power, like China.
Reaper drone. Source: Wikimedia Commons
But that doesn’t mean military drones are going away. They’re simply evolving to resemble fighter jets much more – becoming faster, stealthier, much more agile and capable of air-to-air combat.
Enter the Valkyrie, being developed by Kratos Defence & Security Solutions (NASDAQ:KTOS).
The XQ-58A Valkyrie drone. Source: Wikimedia Commons
The Valkyrie made its first flight on 5 March this year. The project is by no means finished, but it’s designed as a “loyal wingman” to a manned fighter jet, flying ahead and relaying intelligence, engaging enemies, or even sacrificing itself and taking a missile hit to protect the manned jet… and all for around $2 million per piece.
Considering the top-of-the-range fighter jet like the F-35B costs $122 million apiece, it’s almost inevitable that governments will rely on drones like the Valkyrie in future if that means they don’t need to buy as many manned planes. Hell, a Tomahawk missile costs $1.4 million each, and they’re decidedly single use.
I believe Kratos, a midcap defence stock with a disruptive product, has significant future potential if it can fully realise the concept of the Valkyrie. And the Pentagon is expected to make a decision on whether it wants mass production of it as early as next year.
Eoin Treacy – Anheuser-Busch InBev SA/NV (NYSE: BUD)
People are not going to stop drinking because of the coronavirus. In fact, all signs point to them drinking more as we come up with ways to deal with the boredom of being confined to barracks for days and weeks on end.No brewer has sold off more than Anheuser-Busch. It has the ignominy of owning the Corona brand of beer which has been humorously liked with coronavirus on just about every social media site over the last six weeks.
Only 12.5% of revenue comes from Asia and the company owns hundreds of beer brands. It produces everything from Becks to Budweiser, to Foster’s and Stella Artois. The reason it has been underperforming is because of the debt taken on to acquire SAB Miller but the $120 billion total has been paid down to $100 billion and it is continuing to pay down that debt.
The share traded at €120 in 2016 and trades today at around €34. With €8 billion in free cash flow and a €67 billion market cap we are looking at a free cashflow yield of around 11%. That’s going to put a floor under the share eventually. It has been paying down debt and the stock currently yields 5.3%.
The big picture is people are likely to be stir-crazy by the time social distancing is over. Once the dust settles, it is a strong candidate for a handy double.
Six stocks on your watchlist
There you have it, the finest minds at Southbank Investment Research each with something unique and worth adding to your list of stocks that could be set to deliver if and when the markets get through this coronavirus crisis and turn higher.
Some food for thought, and some excellent companies to consider.
Thanks and regards,
Sam Volkering, James Allen, Nick Hubble, Kit Winder, Boaz Shoshan, Eoin Treacy
Editors, Exponential Investor
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