Global markets were lower on Friday as US employment data confirmed the US economy lost 701,000 jobs in March, much higher than the consensus forecast of -100k. The unemployment rate spiked to 4.4% in March from 3.5%.
Our top covid-19 recovery stock report is on the top trades section of the website. We are taking the current market volatility as an opportunity to buy quality companies which are trading at more attractive valuations compared to recent history, while remaining cautious on markets generally given the extent of the corona-virus pandemic is still very uncertain. We think it is time to start “averaging into” stocks (i.e. buying portions of shares, over a set period of time such as 6 months) selectively on a medium term (1 – 3 year) view.
It does appear the market is starting to now differentiate between the stocks and sectors which will face major problems for an extended period (e.g. retail/ tourism / airlines / property trusts), and those which are relatively immune and / or benefit e.g. healthcare. We have highlighted the reasons why we think these stocks will perform well once the world gets through corona-virus, and catalysts for stock outperformance.
Generally, we have chosen stocks as they:
– Are companies which can continue to make good profit margins.
– Have a solid balance sheet to weather an unprecedented economic shutdown period.
– Stable revenues during the lockdown period and/or low costs so there is manageable cash-burn
We are avoiding the most “at risk” industries – and think it is too early to buy the likes of airlines like Qantas & Air New Zealand, retailers, pure retirement villages, and casinos.
BHP Billiton (BHP:ASX)
One stock which could be well places in a recovery is BHP. The sector could continue to perform well underpinned by demand from China which is back online, whilst BHP’s solid balance sheet can handle near-term risks such as weak demand and pricing shocks. Given the diversified and crucial nature of their commodities and being an efficient low-cost operator, BHP should continue to deliver strong cash flow within this challenging environment. The current valuation represents attractive upside potential once the global economy returns back to normal activity, in our view.
Read the full report on the top trades section of the website.
Australia & New Zealand Market Movers
The Australian market was lower on Friday (ASX 200 index -1.6%) despite a surge in oil prices and local energy stocks on hopes of an end to the damaging price war between Saudi Arabia and Russia. In this uncertain environment, companies have started asking investors for cash – Equity raisings are front and centre in Australia with Flight Centre and Southern Cross Media expected to launch offerings today. Other companies also reportedly preparing to raise including Sydney Airport, Virgin Australia, Corporate Travel Management, Tabcorp, Boral, James Hardie, Lendlease, Oil Search and Seek.
The NZ market was up on Friday (NZX 50 +0.7%) as Tourism Holdings led the market higher after it said it reached an agreement with Thor Industries to exit their Togo joint venture. The rental campervan operator will instead focus on a digital strategy in New Zealand and Australia.Tourism Holdings will sell down its stake for US$6 million and is entitled to an annual dividend of US$600,000 for four years. Thor has a four-year option to buy out the remaining stake for US$20 million. Tourism holdings will be cutting costs significantly and approx. 10% of its fleet is being used for corona-virus containment measures.
Travel software company Serko also rebounded after the company said it would cut costs to limit its monthly cash burn to $2 million until the end of the March 2021 financial year.
SkyCity Entertainment Group sank after the casino operator laid off 200 workers and warned a further 700 staff may need to go if conditions don’t improve. There is uncertainty, with local operations likely to be closed for another 8-weeks or so, with international travel shut down for much longer.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of market moves.
- Measures by central banks & governments globally in response to coronavirus.
- Capital raising announcements by companies are growing as companies ask for cash from investors in this uncertain period.
Have a Great Day,