Who doesn’t adore the so-called “Comeback Kings”? These are companies that were stuck in a miserable rut and written-off by the market… only to then soar back to stardom.
In this episode of Buy Hold Sell, James Gerrish of Market Matters and Henry Jennings from Marcus Today ruminate over five ASX stocks that have come back from a prolonged slump or relative underperformance and are now smashing 52-week highs.
They include 1) A technology stock motoring away despite a fall in reported revenue, EBITDA and NPAT; 2) A food business benefiting from the eat-at-home boom; 3) A mining stock created from a disastrous merger.
Our guests opine on whether the share price gains are due to good management execution or whether they are beneficiaries of external factors that could unwind. James and Henry also pick out their two favourite turnaround stocks right now.
Notes: Watch, read or listen to the discussion below. This episode was filmed on 26 August 2020.
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Vishal Teckchandani: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Vishal Teckchandani, and today we're talking about five comeback kings. These are stocks that were stuck in a rut, but they've come back with a vengeance and they're smashing 52-week highs. Joining me on the show today is James Gerrish from Market Matters and Henry Jennings from Marcus Today.
Vishal Teckchandani: Henry, let's start with you. Carsales.Com. Its reported NPAT, revenue, EBITDA we're all down, but its stock price is revving up. Is this really happening? Buy, hold, sell?
Henry Jennings (Buy): It's a buy for me. They've got a really good platform. And who would have guessed in COVID that we would be buying cars. Public transport is no longer a part of the game. So we're out there buying cars. Carsales has got the best platform by a country mile - there's nothing really to touch it. Doing well in Brazil, not so well in the rest of Latin America. Korea has also been good. I think this is still a buy for me, I've got to say.
Vishal Teckchandani: Okay. James, management have done a good job diversifying into offshore markets, but we are in a global pandemic. I mean, who's going to be buying Porsches on welfare money? Buy, hold, sell?
James Gerrish (Buy): Well, I hear a lot of people actually funnily enough, Vish. So I agree with Henry. I think it's a buy at these levels. I get that it's expensive, but if you've got the belief that car ownership is more of a structural change over the next 12 months to two years, which I believe it is, then I think it justifies its valuation. So it's a buy for me, Vish.
Domino’s Pizza (ASX:DMP)
Vishal Teckchandani: Okay, next stop, Domino's Pizza. What a miserable 2018 and 2019 for this company, but then came COVID. We're all stuck at home buying $4.95 pizzas. My personality got cheesier as a result. Buy, hold, sell?
James Gerrish (Sell): Well, I don't think I've had a $4.95 pizza from Domino's. That's an illusion, I think, in terms of their pricing matrix. But I think this is reported well, I think it's a sell though, Vish, at these current levels. So I think the market is extrapolating the strong growth that it's had in the last quarter and applying that to its valuation moving forward. So for me on nearly 40 times earnings with a short term uplift in sales, I think it's a sell.
Vishal Teckchandani: Henry, is the pizza trade going to get sliced? Buy, hold, sell on Domino's?
Henry Jennings (Sell): It's a sell for me. It is expensive. And who would have thought stuck at home, bored, you would order pizza? I guess the issue is then we've all put on COVID kilos. Did we stop ordering pizza? That's the question. For me, they're doing well in Japan, which they've struggled with for a while, and Europe as well. And they've been good to their franchisees because that was a bit of a problem. '18-'19 saw a lot of friction between the head office and their franchisees, a lot of chopping and slicing if you like of those franchise territories, which seems to be under control now, but it's just too expensive. It's run really hard, a lot of shorts out there. And I think maybe as Australians, as we head into summer, maybe pizza should be put on the back burner a little bit and maybe we should be heading outside eating salad. So I think just on that, but the fact really is that it's an expensive stock on a very high PE and maybe the best is behind it.
OZ Minerals (ASX:OZL)
Vishal Teckchandani: Okay. Next stop, OZ Minerals. Personally, for me, a company that went under the radar. Cracked $10, nearly at 15, really riding that gold price nicely. Buy, hold, sell?
Henry Jennings (Sell): It's a sell. I think this is probably as good as it gets for them. They're doing pretty well. Prominent Hill has been good. Carrapateena has been good as well, but I think, you look at the gold price, which has had this huge run and I’ve never really considered OZ Minerals as a gold stock. It was more sort of copper, but now it caught that big uplift. It's done very well. The gold management is very good. They certainly have delivered, but I think maybe the resource trade is just starting to come off the boil a little bit. They may have run a little bit too far. So for me, it's a bit of a sell at the moment.
Vishal Teckchandani: Okay, James, I know you were overweight on this company in your growth portfolio. Is that still the case, or are you in agreement with Henry here?
James Gerrish (Buy): No, I've got to buy here. When you buy a commodity company, you want it to be delivering operationally, is the first instance. So I think OZ Minerals, since 2015, we've had five years of strong operational growth. So it's dropped into strong financial performance and you want a commodity price, tailwind, and copper is the commodity price tailwind. So it's broken its down trend, I think. The outlook for copper is improving. So two things in Oz Minerals’ favour. It's a buy for me, Vish.
Vishal Teckchandani: Okay. It's that time of the episode where our guests reveal their one secret comeback king. James, what have you got for me today?
Zip Co (ASX:Z1P)
James Gerrish (Buy): Well, I'd like to say it's a secret one, but I don't think it is given the recent market performance. So Zip Co is the comeback king. It has rallied from near a dollar a share, but I think the key to this turnaround story was its acquisition of QuadPay in the US. The US is a massive market, and now they've got a foothold into that. So expansion in the US, they've got expansion in the UK, and they're nailing it here in Australia. So Zip is still a buy for me too, Vish.
Vishal Teckchandani: Okay. Henry, which stock for you is going to zip up to 52-week highs and smash it beyond?
IDP Education (ASX:IEL)
Henry Jennings (Buy): I'm surprised that James had Zip as a comeback stock. It's been on a burst forever it seems. I guess the comeback stock for me was IDP Education. IEL's the stock code. It was, again, down and out, counted. We've seen the problems with the pandemic is students aren't coming to Australia. But what we did see from the result from IDP was they've actually managed to pivot their business and really embrace that digital platform. They've cut costs. They've got a big, big pipeline of students lined up, ready to go worldwide. It's like an invading army. The problem is you just got to press the button as to when this can happen. Stock had a massive bounce on the back of this. And I think as economies open up, fingers crossed they do and we start to get back to some normality. Maybe that's 2021. That pipeline of business and the fact they've been able to cut costs is really in their favour. So I still like this one, IEL. It's thin, it does well, I think that's still a buy.
Vishal Teckchandani: Okay. Well, some of these stocks may have gone from fallen angels to comeback kings, but the experts reckon that we're in for some Game of Thrones.
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I agree with Henry. I don't think Zip Co meets the nominated criteria of the wire. Over the years I've noticed that the guests on these 'Buy, Hold, Sell' segments sometimes 'cheat' and highlight stocks that have little to do with the theme in question. I remember there was one episode focused on stocks that were being short sold, and some of the guests were mentioning stocks that wouldn't have even made the list of the 200 most shorted ASX stocks at the time.
Z1P is not investment grade and likely a bubble.
Hi Patrick - from near $1 to $10, seems a fair comeback to me.
Thank-you James Zip is a growth story from here expanding in the U.S.