FYI | Nov 17 2020
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By Peter Switzer, Switzer Report
13 ‘value’ stocks that could surge on rotation
The old saying “there are none so blind as those who will not see” has become incredibly crucial for stock players as Wall Street provided a clear window on the future of stocks in 2021. Sure, there’ll be ups and downs as huge-influencing short-term players get in and out of the market on news items but the trend for next year will be up, given what this week showed us about the world’s vaccine future.
And if you don’t know what rotation means when it comes to the stock market, you’re about to learn about it. Growth stocks have been in the ascendency for a long time and value stocks have really struggled, hurting the reputations of once renowned fund managers, but the tide could be turning.
Value stocks are those with a price that appears low relative to the company’s financial performance, as measured by such fundamentals as the company’s revenue, dividends, yield, earnings and profit margins.
The traditional rotation can be from growth to value stocks and vice versa but the rotation ahead is a post-Coronavirus one, where growth/stay at home stocks lose supporters while reopening trade stocks gain favour.
We saw it last week with Webjet ((WEB)) up 17.9%, while Kogan ((KGN)) lost 18.4%. But then value stocks such as the banks gained, with NAB up 8.3% as the big four banks all gained friends with the thinking being: vaccine sooner rather than later leads to a quicker return to economic normalcy, less bankruptcies, less bad debts and more demand for banking services and funding. And even dividends will return faster than expected so bank share prices rose.
A company such as Woodside ((WPL)) saw its share price up 13.3%, as the vaccine augurs well for a global economic recovery and the demand for oil and gas will spike. On Wall Street, energy was the star sector for the week, followed by financials. This screams that the market believes ‘the vaccine is coming’ story.
But last week’s window showed us another vision of what lies ahead, and it showed with a stock like Zoom.
This big winning ‘stay at home’ stock lost about 5% over the week but was down 16.5% in two days before the market remembered that some of the big life-changing events of the year 2020 when the Coronavirus came to town, will be with us forever but their growth and popularity will be more measured.
In Australia, Afterpay ((APT)) showed the same kind of ‘up, down, up again’ pattern over the week.
The stock lost 13% on Tuesday but then recovered to be slightly up for the week. That’s the gut-reaction of the vaccine news from Pfizer, the move toward reopening stocks and then the realistic assessment that people will use ‘buy now pay later’ services whether they’re locked up at home working or out embracing normalcy.
Different companies will be affected differently depending on how important they have become to people who work at home. But we won’t know this until normalcy breaks out.
Gold stocks were smashed and these could struggle until inflation or debt concerns spook bond markets.
What I find interesting is that some popular stocks over the pandemic period were sold off last week but not by much. This includes Woolworths ((WOW)), down 2.3% to $38.06, Coles ((COL)) off 3.5% to $17.76, Domino’s Pizza ((DMP)) gave up 6.3% to $79.12 and JB Hi-Fi ((JBH)) lost 6% to $45.81.
These companies won’t fly high and surge like they did in 2020 but they won’t be rejected in 2021 either. They’ll trend higher at a slower rate because the economy will do well. They will be de-hyped but not dumped.
But what stocks could surge on the rotation?
Try these that have shown the market believes in them but they’re still a long way off their pre-COVID-19 share prices. To me, this shows there’s upside for these stocks but it could take a year or even more. Mind you, it could be shorter but I don’t like to get my followers hopes up too far and too fast.
Other companies that took a virus hit included Blackmores ((BKL)), Reliance Worldwide ((RWC)), Star Entertainment Group ((SGR)), Corporate Travel Management ((CTD)), Ansell ((ANN)), SkyCity Entertainment (SKC) and WiseTech Global ((WTC)). Some of these, such as Corporate Travel, have rebounded more than others, while others have additional problems other than the virus-related restrictions, such as Blackmores and Treasury Wine Estates ((TWE)) with China regulations.
The bottom line is that a quality company that has seen its share price crushed because of the change to its customer base because of the Coronavirus should benefit from the rotation of investment money out of ‘stay at home’ stocks to ‘reopening trade’ stocks, but it could take time, so patience might be required.
(By the way, I hold all the stocks in the table above, because I’m a long-term investor who buys good companies when the market beats up on businesses because of a major shock that over the course of time will become less of an issue.)
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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