FYI | Feb 02 2021
This story features AURIZON HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: AZJ
By Peter Switzer, Switzer Report
6 top 100 stocks with 20% upside
With the stock market spooked by the revenge of the ‘nerd’ online retail investors, with short-sellers forced into buying stocks they’d previously dumped, resulting in a $4 stock like GameStop rising 400% in a week, I thought I’d go searching for quality companies that the analysts think have at least a 10% upside.
I decided to concentrate on the top 100 companies in the S&P/ASX 200 Index.
I found 29 companies that passed the 10% plus test. Then I thought maybe I should set the bar at 15%+ upside and I wound up with 17 businesses that the experts surveyed by FNArena thought had 15% upside.
Ramping up my test to 20% plus, I ended up with a more manageable 6 companies but then I had to make them pass my “quality business with limited headwinds” test.
So here they are:
1. Aurizon Holdings ((AZJ))
Aurizon Holdings had 37.7% upside and is a quality company but it does have Chinese and coal connection issues. That said, this is a company I’d be prepared to have on my short list of quality companies that look like a solid 2021 buy. The world is heading into a huge global economic comeback and this transport business is bound to be a beneficiary. It’s only real issue is coal, but no one expects this increasingly despised product to be dumped forever in the short term. It looks like a decent risk inside a portfolio of 20 stocks or more.
2. Beach Energy ((BPT))
Beach Energy has a 26.2% upside call by the experts. It too has longer-term challenges with the rise of electric vehicles and anti-fossil fuel attitudes, but the short-term outlook with a growing global economy looks positive for the business. Of course, the company has OPEC and its price-setting antics to deal with, but I know someone like Julia Lee quite likes the company.
3. BlueScope ((BSL))
BlueScope Steel passes the quality test of a blue chip business and the analysts think the stocks has 25.5% upside. This will be another to benefit from an improving global economy.
The chart shows the company has been on a nice rising trend since March and the recent pullback would be linked to the second-wave problems with the Coronavirus, which has stretched out the time for when the global recovery rebounds. But this looks like an opportunity for the buyer and holder types.
4. Newcrest Mining ((NCM))
The next stock with 25.9% upside might be right for someone with no exposure to gold in their portfolio. Newcrest Mining is regarded as a top notch miner and clearly the analysts think we’re looking at a bargain at current prices. It could be argued that gold has had its day, with the economic outlook for 2021 looking very positive. However, gold can be a good insurance play for an investor who’s primarily buying stocks hoping for rising share prices.
Gold price 10 years
On a five-year basis, the chart below shows the current price is near its low, and the two previous peaks were over $35. Given the fact that the world is still struggling with the pandemic and global economies have borrowed so much to spend too much, inflation is likely over the next few years, and this is generally good for gold prices.
NCM five years
I don’t think the gold price will spike soon but for non-gold players, NCM looks like an interesting play.
5. QBE Insurance ((QBE))
The next stock, QBE, has a projected price rise of 25.9%. Three years ago I might have fallen into this stock very easily, but nowadays I have doubts about this business. Once upon a time, I used to say avoid insurance companies and airlines because too much can go wrong, and this company has had its share of management disasters and dramas, so it could be in for a change of fortune.
Personally, I’d rather Qantas, which has a 16.1% upside, but I have started this analysis based on what quality companies have a 20% plus upside. The problem for me with QBE is that I have doubts about this company’s quality, as the chart below shows.
QBE five years
Right now, nothing on this chart recommends the company, so if you want to take the punt — you’re gambling that the company has found its lost mojo. The market doesn’t think they have but the analysts say ‘yes’.
This is a table of what the analysts predict:
This table makes you think that possibly QBE is about to turn the corner with six out of seven analysts seeing notable upside from its current price.
6. Whitehaven Coal ((WHC))
The final ‘quality’ company is Whitehaven Coal and here the analysts see a whopping 35.2% upside for this purveyor of that despised product — coal! My colleague Paul Rickard thinks coal businesses like these could be bought by private equity to avoid the glare of the public eye. Paul also argues that even though coal will be phased out over time, that time could be still a long way off.
The next post-Coronavirus boom will still use coal, especially in China and India, so a company such as WHC could go for a ride higher or see a takeover play by a non-listed company.
I know Julia Lee has recently mentioned this as a buy, but for me the risks with coal are such that it makes the play more of a punt rather than an investment. That said, for the thrill-seekers who aren’t excessively influenced by climate change concerns, that 35.2% gain on offer might look like a punt worth trying. It won’t get me in but I think others will think seriously about WHC.
Whitehaven Coal (WHC)
So there are 6 top 100 stocks with potentially a 20% plus upside that are worth having a long hard think about.
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.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On
For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED
For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED
For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED
For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: QBE - QBE INSURANCE GROUP LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED