Steve Thaxter- Senior Partner and Principal Adviser
Sovereign Wealth Partner
COVID implications seem to dominate everything these days and picking stocks is no exception.
This article identifies some of the recent winners and losers in today’s topsy-turvy market. We would stress that no recommendation should be implied from the stocks mentioned but don’t hesitate to ask us for stock advice that’s tailored to your situation.
Macquarie’s Jason Todd breaks the equity market up into 4 groups of stocks – structural winners (Z-shapers – Tech, Healthcare, Logistics, Online) versus structural losers (L-shapers – Banks, Office/Retail REIT’s). Also the cyclical winners (V-shapers – Resources, Retail – Electronics) versus cyclical losers (U-shapers – Travel & Tourism, Energy). As he walks us through a day in the life of the average Australian, the winners and losers become obvious. Firstly the winners…
“The alarm goes off on the iPhone (Apple), we check our Twitter, Whatsapp and Facebook accounts on our iPad. Walk to our home office and open our email (Microsoft), video-conference our workmates (Zoom), search the Internet for some help (Google), do a virtual gym class (Pelaton), order some food (Uber eats) and then relax with some streaming (Netflix), mobile gaming (Tencent) or online shopping (Amazon).
For a uniquely Australian experience, we might add in some milk powder for the baby (A2 Milk), buy something online (Kogan) and pay for it later (Afterpay), get that delivered via a distribution centre (Goodman) as we check how much the value of our house has fallen (REA Group, Domain), what bargains are being offered on a new or used car (Carsales) while doing some last minute shopping for essentials (Coles / Woolworths).
Now consider the losers…
We didn’t put work clothes on, catch a cab (a2b Australia) to the airport (Sydney Airport) and pay a toll (Transurban) while looking at billboards (oOh!media), board a red eye (Qantas, Flight Centre, Corporate Travel), catch the bus or train to the office (Dexus), buy a coffee, do a lunchtime workout (Viva Leisure), grab a sandwich, pop into the shops (David Jones, Scentre Group, Vicinity) or a major bank, meet for drinks and dinner (Star Entertainment), catch a movie (Village Roadshow), or go to a game (Tabcorp).”*
*Source Jason Todd Macquarie Wealth Management Research.
Right now the minority of companies actually growing their sales and market share are being richly rewarded by investors. Remember though that even great businesses can be massively hyped to unrealistic prices. And consider the long game, today’s losers could turn into winners as things return back to normal. That topic is further explored in our separate Growth v Value story.
Right now we’re just getting into the swing of earnings season, when most Australian ASX listed companies report their results for the year to 30 June. This year, more than ever, we expect the results will be hit and miss, since so many companies withdrew their normal earnings guidance when the pandemic hit. Indeed we expect that most Australian companies will be hesitant to provide earnings guidance for the year ahead.
Macquarie analysts are forecasting around a 20% overall decline in company earnings for the year to 30 June. At this point, 2021 earnings are forecast to be around the same as 2020 then rebuilding with 10% growth in 2021.
Meanwhile the disproportionate “V” shaped rebound in share markets reflects the market’s current assessment that the massive fiscal and monetary stimulus programs will plug the gap, the economy will recover and valuations can be justified.