Coronavirus has sparked one of the biggest falls to hit to global equities in the history of stock markets.

In the last month the ASX has lost nearly 40 per cent; only a handful of stocks have gained in this time.

While no one is able to predict when this crisis will be over, money managers from Alex Waislitz to Geoff Wilson believe that stocks which were indiscriminately hit without regard to their fundamentals will be quick to rebound.

The latest money manager to throw its hat into the proverbial ring is L1 Capital, which says it is still searching for investment opportunities.

“We are primarily focused on high quality businesses with sound balance sheets that will recover strongly as the virus passes,” it said.

“There are also many opportunities now emerging in companies that are so oversold that they have priced in far too much downside.”


The oversold

While L1 mainly named foreign-listed businesses it picked a handful of ASX small caps. One was gold mining contractor Perenti (ASX:PRN) which has shed two thirds of its value in a month.

L1 pointed out it was trading at less than three times its earnings and had solid earnings trajectory going forward. While the company had been considering acquiring Downer (ASX:DOW) L1 thinks it will not happen at the current share price.

The second is Karoon Energy (ASX:KAR) which too has been sold off not just because of the coronavirus but the oil price rout.

Again acquisitions proposed before the outbreak. would be unlikely to proceed for some time. But when it happened L1 says there is potential for a capital return nearly double the current share price.

Third was hotel owner Hotel Property Investments (ASX:HPI). While there has been speculation broader hospitality sector will reel for some months due to mandated closures, L1 pointed out the majority of its tenants were Coles subsidiary Liquorland.

Speaking of Coles (ASX:COL) L1 named the supermarket chain as a large cap that it thinks will bounce back. While L1 named panic buying as an immediate buffer, it would benefit in the long term due to the failure of aspiring competitors Aldi, Kaufland and Amazon to gain traction.

The one other ASX-listed stock it named was ultra-fast fibre network owner Chorus (ASX:CNU) which is dual listed in New Zealand. While the network build has eaten out of its cash flow for some years, it was almost complete and when done it would be a regulated monopoly.

“We believe Chorus is very undervalued and expect dividend growth to accelerate over the next 3-4 years,” it said.


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