MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now and in this edition we’re looking at the post-COVID environment. 

Today we hear from Ben Clark, a portfolio manager at TMS Capital.

“If you’re thinking ‘What’s an area that looks interesting at the moment?’ it’s the companies that will be the winners over the next decade and a number look a lot cheaper than they have for some time because of the contraction in PEs [Price-Equity ratios],” he told Stockhead.

“A lot of these companies have run into COVID issues, a lot of structurally growing businesses are global businesses – they have operations all over the world – and as we all know different countries around the world are dealing with COVID in different ways and it’s causing different knock-on effects for businesses in those markets.

“It’s been a double whammy that’s happened where in the short term there has been some earnings impact that  the market wasn’t anticipating and at the same time a contraction in PEs which has led to a bigger downside move than you would typically expect.”

 

Post-COVID will differ from stock to stock

As vaccinations roll out globally it is clear there is light at the end of the tunnel for the pandemic but no one knows exactly when, let alone how. And no individual shareholder can predict with certainty the post-COVID environment for their stock.

“I think investors realise what’s happening; they just don’t know what the time line looks like – it’s different for every company,” Clark said.

“Some are coming out of it and probably will overshoot on the other side, others will have a longer drawn out recovery.”

Clark says there’s “quite a lot” of examples of stocks with a short term contraction but thinks a great example is the second largest stock on the ASX.

CSL (ASX:CSL)

In 2021 this company has attracted investor attention from manufacturing the AstraZeneca vaccine in Australia.

But it’s bread and butter is in blood products, particularly in the US.

“The reality of their business is that they’re incredibly efficient at collecting and on-selling blood and how they do it is they pay people across America to donate,” he said.

But with many of CSL’s blood collection centres in the poorer states of America, this COVID-vulnerable demographic haven’t turned out in the same numbers as before.

“This demographic in the States wasn’t willing to go out and do something they felt is risky in terms being around other people, going to a hospital or blood collection centres,” Clark said.

“That’s had a knock-on effect for CSL where they haven’t collectedthe normal volumes they would see and at the same time they’ve had to pay more from the blood from the people that did donate, they’ve had to separate people and clean their centres more regularly.

“The cost has gone up, the price has gone up and the volumes have gone down and that’s led to some weaker than expected earnings at the same time as we’ve seen a pull away from growth stocks.”

CSL (ASX:CSL) share price chart

 

ResMed (ASX:RMD)

“RedMed is another healthcare stock [hit by] people in America and Europe not being worried about being treated for sleep apnoea – hospitals are closed or in lockdowns,” Clark said.

“So the driver for their business has slowed up.”

ResMed (ASX:RMD) share price chart

 

 

Altium (ASX:ALU) & Appen (ASX:APX)

Clark says the tech sector has had issues with COVID, even the giants.

“If you look at the technology shares – Altium and Appen have high profile issues dealing with big technology customer and things like global chip shortages as a result of COVID – COVID has led to a fall in demand for Altium products,” he told Stockhead.

“Every company that operates in offshore markets is experiencing some COVID issue and you have to do your work and work out what you think their path out of it looks like.”

Altium (ASX:ALU) and Appen (ASX:APX) share price chart

 

What about locally based ASX stocks post-COVID?

But what if your company is thriving in “Fortress Australia”? Could the moment international borders re-open spell trouble?

Clark thinks if it has been benefiting from money that would ordinarily go into international travel, and the question is when not if that money will go back, then potentially so.

“We all know there’s been these weird knock on effects with COVID,” he said.

“People have gone on buying new cars like crazy and even secondhand hand cars – prices of secondhand cars have actually gone up during of COVID which has never really happened before.

“Retailers, whether it’s Woolworths (ASX:WOW) and Coles (ASX:COL), and there’s a whole lot of others had this surge in buying furniture and all this sort of stuff.

“So I think as borders open it’s obvious that there’s a lot of pent-up demand to travel and we spent $63 billion travelling overseas – no one’s been able to do it for a couple of years, it’ll probably be three years by the time we can do it.

“So a lot of the money that’s been spent on other products and services will almost certainly go back into travel, things will normalise.

“These companies will be on very elevated comps (comparable company analysis) and I think you have to be careful on these areas because unless you think there’s a structural change that’s happened – some companies will have experienced it but I think a lot probably haven’t – that’s an area you’ve got to be a bit concerned about.”

 

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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