FYI | Sep 02 2020
By Peter Switzer, Switzer Report
With reporting season done and dusted, I’ve asked some of my most respected market watchers to give us the one stock they want to hold going forward. I won’t muck around giving qualifications, but I will simply give you the question I asked them and then I’ll give you the stock they like and why. And yep, I will throw in mine, which has 59% upside if the [FNArena database] analysts know what they’re talking about!
[Note: upside/downside based off consensus target prices against Tuesday closing prices.]
Here’s the question: “Given reporting season is over — what’s your best stock for the year ahead? And what are your reasons?
1. The expert: Rudi Filapek-Vandyck of FNArena.
The stock: Charter Hall Long Wale REIT ((CLW))
Analysts’ view: +7.3%
- It’s an alternative to the usual ‘go-to’ stocks for income seeking investors.
- If we do have something like dividend champions on the ASX (reliable,sustainable payers of dividends that do not cut and instead grow their cash flows and dividends), CLW is part of that select group in Australia.
- Its share price is currently slightly undervalued but is offering 6%-plus yield, with the certainty there won’t be a cut, and growth is on the horizon.
- On the combination of more certainty, less risk, and high quality, CLW should be on an investor’s radar.
2. The expert: Michael Wayne of Medallion Financial.
The stock: Megaport (MP1)
Analysts’ view: -12.6%
- Megaport is a provider of elasticity connectivity and network services, operating under a Network as a Service (NaaS) business model.
- The company prides itself for offering the world’s first elastic SDN-based interconnection fabric, which accelerates connection between customers and data centres.
- Megaport allows businesses to swiftly access multiple cloud databases – the likes of Amazon Web Services, Google Cloud Platform, IBM Cloud, Oracle Cloud, Salesforce and SAP – through a single platform.
- This is extremely important in an environment where many multinational corporations have several business operations across several countries and use several cloud databases depending on the location and business – Megaport effectively streamlines the communication by allowing data stored in different cloud servers and countries to be accessed universally on a single platform.
- The share was on the move recently, after the network-as-a-service provider announced the upcoming release of Megaport Virtual Edge. The product innovation will allow customers to tap into Megaport’s platform to deploy and extend network functions in real time, without deploying hardware.
- The global cloud database market is estimated to grow to $24.8 billion USD by 2025 which places MP1 in an enviable position to capitalise should management continue to deliver.
3. The expert: Michael Gable of Fairmont Equities.
The stock: Goodman Group ((GMG))
Analysts’ view: + 3.4% upside
- All the biggest gains at the moment are in the tech sector, but GMG is a company that will provide a solid return over 12 months with little volatility.
- The stock has been a favourite of mine for a number of years as the best run REIT on the market.
- Industrial property is a sector that is not only benefitting from COVID-19, but it can also benefit from a further reopening of the economy.
- Their recent FY results were better than expected and it makes me confident that earnings growth will continue to be strong and reliable.
4. The expert: our very own Paul Rickard of The Switzer Report.
The stock: CSL ((CSL))
Analysts’ view: + 9.9% upside
- Still Australia’s best company (on performance track record).
- Adjusting for currency, delivered profit growth of 17% and revenue growth of 9%. Both despite some COVID-19 headwinds.
- Has guided to revenue growth in FY21 of 6% to 10%, and profit growth of 0% to 7.7%.
- Although profit growth in FY21 is less than market expected, it is spending an extra $100m on R&D.
- Upsides with COVID-19 (1 vaccine opportunity, 4 treatment opportunities).
- Upside with expected northern hemisphere flu vaccine demand.
- Plasma collection costs should be temporary.|
- Not “outrageously” priced.
5. The expert: another of our very own, Tony Featherstone of The Switzer Report
The stock: Qantas ((QAN))
Analysts’ view: +5.2%
- “I’ll stick my neck out and say Qantas as a top 12-month idea,” Tony confessed.
- Global airlines are a basket case because of COVID-19. Australian airlines are no exception. Border closures, grounded fleets, Virgin’s demise and rebirth, massive job cuts at Qantas…the list goes on.
- Longer term, the boom in home-based work and remote meetings (Zoom, etc.) could moderate business-travel demand when conditions improve. International travel demand could be weaker if some Australians feel less confident to travel overseas after COVID.
- Fast forward 12 months and the aviation outlook will be improving. Granted, a recovery in international flights will be protracted due to lingering COVID-19 problems overseas. But domestic travel will be poised to recover strongly from this time next year thanks to huge pent-up travel demand. A persistently lower oil price will be another tailwind for Qantas.
- Qantas should get through the pandemic in good shape. Its balance sheet is strong after the capital raising; the airline is seeking a $1 billion reduction in sustainable costs; and will have a weakened, smaller competitor in Virgin. Qantas management has an excellent record and will get the airline through this crisis.
- By this time next year, the market will look to Qantas’ FY23 earnings and rebounding aviation sector. Any recovery will take time and be hard-won. The Qantas share price is reflecting the challenges. Qantas is trading at a significant discount to long-term valuation averages and I’ve always thought it has latent value through its Frequent Flyer program, which gives it huge, digital footprint with customers and businesses.
“As any good contrarian investor knows, you buy quality companies when there’s ‘blood on the street,” Tony concluded.