FYI | Apr 28 2020
By Peter Switzer, Switzer Report
One of the enduring quotes someone like me can't forget and there are many that have guided the way I invest comes from the Oracle of Omaha, Warren Buffett when the US was in the depths of the GFC stock market crash.
I can't recall his exact words but it was virtually what he said in 2019: "For 240 years it's been a terrible mistake to bet againstAmerica, and now is no time to start. Americanbusiness and consequently a basket of stocks is virtually certain to be worth far more in the years ahead."
So when I think about our top 100 companies listed on the ASX, I equate it to a big chunk of quality Australian businesses. In early February, most of those companies were assessed as much more valuable than they are today but the Coronavirus and government responses worldwide have changed all that, for now.
So I decided to look at our top 100 companies and see what FNArena's [database of leading broker] analysts thinks about some of these businesses.
Roughly 51 out of 100 are predicted to rise in value from current share prices by 20% plus and 27 out of these are expected to reap 30% or more. And believe it or not, but 16 of them could be in for a 40% plus rise if these experts know what they're talking about!
A big part of most companies current issues are linked to the Coronavirus, while some have had chronic problems made even worse because of COVID-19. Here are the companies in question in order of predicted upside over time:
All these companies have been hit by the Coronavirus in one way or another, with a company like Lendlease clearly set for lower revenues, following the Morrison Government insisting on rent reductions and ruling out evictions.
That said, you have to recognise that these views are longer-term predictions. The current share prices are determined by big market players, like fund managers, who largely don't buy and hold for two or three years. That's what a long-term investor does.
Take companies such as Lendlease and Flight Centre and ask yourself the following questions:
- Will we back to normal overseas and domestic travel within two years? If so, a 47.4% gain over two or even three years is a great per annum result 23.5% over two years and close to 18% over three, before adding in dividends!
- If economies are back to normal in two years, what happens to Lendlease's rent collections? That 81.4% over two or even four years looks attractive, provided you're a patient investor.
Of course, picking one company out of 16 to shoot the lights out is a bit like backing a racehorse to win a big race. It could be a good horse but it's racing 15 other good chances.
The careful investor could buy all 16 and any company that's destined to do badly would be more than offset by the others, presuming our experts know what they're talking about.
For those who don't like longshots, I run my quality company filter over the 51 stocks where there's a predicted 20% upside and this is what I've come up with (they're in order of the potential biggest gain, not necessarily my preference):
Other good companies with solid forecasted returns include:
Clearly, we don't know if there will be another leg down, but many of the quality companies look like great value for the long-term investor who's prepared to wait for the local and global health and economic data that tells us that the worst is behind us. That's when companies will live up to their share price prospects.
Finally, remember if you're investing for the future, then diversifying your companies on a sectoral basis makes a lot of sense. The list I've provided gives you enormous scope for some great diversification.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual's objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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