Is Beijing Creating Buying Opportunities For Stocks?

FYI | Dec 16 2020

This story features TREASURY WINE ESTATES LIMITED, and other companies. For more info SHARE ANALYSIS: TWE

By Peter Switzer, Switzer Report

Is Beijing creating buying opportunities for stocks?

In the world of investing it often pays to be a contrarian. With China currently using tariffs on specific industry exporters, such as producers of lobsters, wheat, barley and beef, the question is: will these Beijing bans create money-making stock playing opportunities?

Let’s face it, the best time to buy stocks this year was when the world was panicking about the Coronavirus, the associated closure of economies and the looming recession.

BHP dropped to $26. It’s now $42. If you believed in our best miner, you could’ve made 61.5%. If you’d thought Afterpay was a future winner and bought 50 of them at $10, you would’ve turned $500 into $5,000!

You could have made 53% ‘gambling’ on CBA and 53% investing in NAB! So are there beaten up companies that look in trouble now while Beijing plays hard ball on trade but could be winners, say, a year down the track?

This week we saw the AFR report on a survey of CEOs that revealed that President-Elect Joe Biden could help “repair Australia’s relationship with China”. If that happens, it would be good for some companies’ stock prices.

Here’s a list of affected companies and what FNArena’s database of leading analysts think lies ahead for their share prices:

Now be clear on this: the fast rebound we saw this year since March 23 for stocks such as Webjet (up 118%) and Flight Centre (up 90%) is because the fall was so quick and happened under crazy Coronavirus circumstances.

That said, Webjet was a $14 stock before the virus hit and Flight Centre was a $40 stock! These companies have upside, but it could take some time.

And time is the issue for the stocks listed above that have upside.

The two I like are Treasury Wine Estates ((TWE)) and a2 Milk ((A2M)). The reason why I’ve singled both these operators out is because they’re both quality companies. A2M is not a victim of a trade ban and is really a Kiwi company listed on our stock market. There could be a bit of Chinese pushback on the company that has affected Bubs Australia but there are also issues around no Chinese tourists, whose purchases here were cream on the company’s cake.

Meanwhile, TWE’s share price has virtually halved. If the Chinese ever patch up their relationship with us, the share price will spike. Also, the current reaction is based on the unknown implications of the 212% tariff imposed on their wine, but new customers and even a private equity takeover offer are all possible developments that could raise the current share price.

Blackmores (BKL) could fall into a similar category but the downside predicted by the analysts is pretty steep at 18.2%. But this company has struggled since former CEO, Christine Holgate, left the company for Australia Post.

BKL (year-to-date)

This was a $217 a share company in late 2015 and has not done anything to suggest that it’s a company on the comeback trail.

Bubs Australia (BUB) with 1.9% downside could be a future gainer but it might require a comeback for Chinese tourism, and that could be some time off. It would also be helped by better Australia-China relations.

An interesting company is Clover Corporation ((CLV)). This is its mission statement: “To deliver science-based bioactives which provide health benefits to the adults, infants, children and medical food markets.” This company is in the right space with more of us much more interested in what we eat and how it will affect our bodies.

The analysts think this company has 36.8% upside and this could be a speculator with potential. Right now, the short-term charts don’t make me too enthusiastic but the long-term are pretty supportive of a company in the right space.

Elders (ELD) up 28.8%, GrainCorp (GNC) up 16% and United Malt Group (UMG) up 12.1% are all liked by analysts, but I worry about agriculture companies with drought and floods always a threat to investing success.

Then there can be worldwide gluts. Keeping tabs on this kind of stuff is hard. They are there for the thrill-seekers and while the weather forecasts look good for rain, as we can see in Northern NSW right now, the storms are washing away the beach at Byron Bay!

I kept an open mind to the stocks that might benefit from an eventual improvement in Australia-China relations and Clover Corp was the one that surprised me, though I think this company needs more homework before I give it the thumbs up.

The company copped it from the bushfires, then COVID-19 and some regulatory issues but still revenue increased 15% to $88 million. But EBITDA was down 35% to $18.9 million for the full year. A positive sign was that this was achieved with no JobKeeper payment.

It’s in the infant formula market and, like A2M, will undoubtedly improve as normalcy returns to the travelling world.

The two quality picks worthy of a contrarian play are TWE and A2M. It might be a wait but when you invest in quality companies with great track records, it can be worth the wait. And for a little risk, Clover Corp does look interesting.

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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