‘COVID Opportunists’: Six global stocks poised to outperform in the pandemic recovery
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The pandemic is around 18 months old, but there are still some compelling post-COVID stock opportunities on offer — if investors are prepared to look global.
That’s according to Bell Asset Management (BAM), an Australian-based investment group which specialises in global equities.
While the post-COVID tailwinds for global markets are still in place, BAM said various macro risk factors are developing that, if they don’t spark a material correction, could at least give rise to more volatility.
They include the impact of COVID-19 variants such as Delta, global supply chain bottlenecks, rising inflation and the prospect of higher interest rates and tighter monetary policy.
“In this environment, we believe it is important to focus on the underlying fundamentals of companies and invest in the names that are well placed to handle any external disruptions,” BAM said.
“We believe there are many high quality global SMID companies that should emerge even stronger in a post-COVID world.”
It described such companies as “COVID opportunists”.
In a research note this week, the company highlighted six companies in its global portfolio; four based in the US, one listed in Hong Kong and another in Sweden.
Yeti Holdings (NYSE:YETI)
One of BAM’s US investments, Yeti Holdings fits within the fund manager’s theme of established retail companies with scale that have exposure to strong tailwinds in US consumer trends.
The Texas-based company designs and distributes various outdoor products such as coolers (eskies), bag and chairs.
The company benefitted from higher discretionary spending on outdoor activities during the pandemic.
And while the ongoing trend towards domestic US travel is fostering strong trading conditions, BAM says the company may generate more upside from its international growth strategy.
“In 1Q21, international sales grew over 100% y/y but still make up less than 10% of total company sales,” BAM said.
In addition, it said the company generates strong gross margins of more than 50%, with positive free cash flows “despite still being early on in its expansion phase.”
“We see good upside to earnings for many years to come,” BAM said.
Pool Corporation (NASDAQ:POOL)
Pool Corp is the world’s biggest distributor of swimming pool supplies, equipment, and related products, BAM said.
It’s also “20 times larger than its nearest competitor and enjoys huge network advantages”.
The company was a notable COVID-19 beneficiary with more families confined to their homes, which gave rise to an increase in pool construction and maintenance.
Shares in POOL have climbed from March 2020 lows beneath US$200 to more than US$500.
However, “the company’s very strong backlog, combined with favourable end market conditions, give us confidence that solid growth will continue”, BAM said.
Listed on the Stockholm Stock Exchange, the Swedish company is one of the world’s biggest supplier of outdoor transportation products such as bike racks and roof boxes.
BAM said Thule was a beneficiary of COVID-19, as people’s attention shifted to outdoor activities such as cycling while the pandemic sparked a trend towards ‘staycations’, with broader travel restrictions in place.
Like Pool Corp, shares in Thule have already doubled since the onset of the crisis last year.
However, the staycation trend has “a long way to play”, BAM said.
In addition “ongoing supply chain constraints in bikes and RV related categories will help to extend the brand strength seen during COVID for more years to come:.
Tractor Supply (NSYE:TSCO)
This New York-listed company is one of America’s largest retail chain stores for home improvement and farming products.
While physical-store retail networks were hit hard by the pandemic, BAM said Tractor Supply “thrived in the face of adversity”.
“The business picked up 9 million new customers in 2020 and those customers kept coming back more than once,” BAM said.
Shares in TSCO are trading near US$200 after falling to around US$80 in the pandemic.
BAM said the business doesn’t have a major competitor in the US market, and also rates the strength of TSCO’s management team which has the ability to execute on “continued initiatives to drive margins higher”.
Techtronic Industries (HKG:0669)
Hong-Kong listed Techtronic is a global competitor in the market for cordless power tools and outdoor power equipment.
Brands in its product suits include Hoover, AEG, Ryobi and Milwaukee, and the company has delivered seven straight years of at least 20% growth in its Milwaukee products division.
“While the company benefited massively from people working from home during COVID, we continue to believe in a robust post-COVID growth trajectory through the recovery in the commercial market, as well as accelerating market share gains,” BAM said.
Shares in Techtronic have climbed from HKD$50 in March last year to more than HKD$170.
Fortune Brands Home & Security (NYSE:FBHS)
Headquartered in Detroit, FBHS is a leading US manufacturer of home security products, with a portfolio of leading brands.
The company also sells home improvement products such as cabinets, doors, decking, and fencing.
FBHS was a clear beneficiary of the home improvement boom amid COVID-19 lockdowns. But looking ahead, “we believe there is a strong under-appreciated housing recovery underway in the US over the next few years, and FBHS is very well placed to benefit”, BAM said.
“With a strong macro backdrop, good opportunity to expand margins, and upside from successful capital deployment, we see good upside to earnings over the next few years, which does not look to be accounted for in the current valuation.”
At around US$100 per share, FBHS has bounced from its post-COVID lows, but its 12-month gains are smaller with the stock tracking sideways from around US$85 at this time last year.