Buy Hold Sell: 5 stocks ready to take flight

This week, the world received the news that not only one, but two potential COVID-19 vaccines had been produced. Does this mean that 2021 goes back to normal and the world reopens? As this confidence grows, investors are increasingly looking to capitalise on companies that have been beaten down by the pandemic, but have a lot of upside potential.

In this episode of Buy Hold Sell, Ben Clark from TMS Capital and David Wilson from First Sentier Investors discuss the companies that are riding the vaccine wave, and will benefit from a reopened economy in 2021.

They include 1) QANTAS – the airline beaten down by the pandemic but looking to make a soaring recovery, 2) Scentre group – the shopping centre company up 35% this month and 3) Sydney Airport – an obvious beneficiary but trading at a PE of 101.

Ben and David also each bring a stock that they think will receive a tailwind as the economy reopens in 2021.

Notes: Watch, read or listen to the discussion below. This episode was filmed on 18 November 2020.

Edited Transcript  

Bella Kidman: Welcome to Buy Hold Sell, brought to you by Livewire Markets. I'm Bella Kidman. After a long nine months of closed businesses and restrictions, we've got not only one, but two potential vaccines. To celebrate this great news, we're going to talk about companies that are going to benefit from a reopening in 2021. To talk to me about that today, I'm joined by David Wilson from First Sentier and Ben Clark from TMS Capital. Ben, I'll start with you. Qantas, they've just celebrated 100 years of operation. Seems like they'd benefit from a vaccine, but are they storing too much baggage?

QANTAS (ASX:QAN)

Ben Clark (Hold): Look, I'd have a hold on Qantas. I think we're going to see a domestic tourism boom in 2021. I think the question mark is, when do the really profitable routes start running for Qantas again? A lot of those were to the US and to Europe. Probably a 2022/23 story. The management's done a great job through this crisis. The Qantas frequent flyer business is awesome. It's a hold for now.

Bella Kidman: David, international scheduled passenger traffic was down 98.2% this year. A lot of room for Qantas to recover. Buy, hold, or sell?

David Wilson (Buy): There's a lot of room in those airports at the moment, yes. So we actually have Qantas as a buy. We think they've taken the necessary steps in addressing their cost structure through this period. Also, you've now got Virgin, which is actually more interested in actually earning money with private equity ownership. Therefore, I think you will get a more profitable domestic market as well.

Scentre Group (ASX:SCG)

Bella Kidman: Okay. David, sticking with you, Scentre Group, a shopping centre company with retail destinations all over Australia and New Zealand. Buy, hold, or sell?

David Wilson (Sell): We would have it as a sell. We think management's good. We think the assets are good as well, but it's a low-returning business. And I think COVID has actually accelerated the shift towards online.

Bella Kidman: Ben, all year we've been told that retailers are going to succeed only if they move online. Will Scentre Group feel the wrath of this if they don't? Buy, hold, or sell?

Ben Clark (Hold): Hold. I think the long-term trends have accelerated, and are against them, but short-term, they look cheap. There's a massive discount to NTA, if the market ever prices it at NTA, I'd be surprised, but we have seen quite a decent bounce back in cash collections, foot traffic, and occupancy levels. So maybe there's a bit more to go in the recovery before you want to sell it.

Sydney Airport (ASX:SYD)

Bella Kidman: Okay. Ben, Sydney Airport, an obvious beneficiary to border openings. Trading at a PE of 101. Buy, hold, or sell?

Ben Clark (Buy): I'd have a buy on Sydney Airport. I think this is probably the safest way to play the reopening of travel. We think you can be wrong by a year with Sydney Airport, but ultimately, you can still be right. There's a great asset behind it. Regardless of whether airlines go to profitable or less profitable routes, you're still going to get foot traffic going through the airports. A buy.

Bella Kidman: David, Sydney Airport is up 25% this month alone. Is that convincing? Buy, hold or sell?

David Wilson (Hold): Well, like Ben, we think it's a great asset, but we think it's a hold. We think it'll take a while for those earnings to come through. So we actually prefer to own Qantas, as I said, but great asset. And the management has generally done a pretty good job in terms of reconfiguring the business and the balance sheet for that matter as well.

Bella Kidman: Well, it's that one time of the episode that our guests are going to share one stock that they think are going to benefit from a re-opening in 2021, David, what have you got for us today?

ALS (ASX:ALQ)

David Wilson (Buy): The stock that we would put forward is ALS. We think that as the geochem market opens up, that'll help drive their earnings. They've positioned themselves very well in the life sciences business as well. So for us, it's ALS.

Aristocrat Leisure (ASX:ALL)

Bella Kidman: Ben, what's that one company that's going to kick goals in 2021?

Ben Clark (Buy): I'm going to go for Aristocrat, who have done very well through an incredibly difficult period for them. Getting into digital was a great move in hindsight. But as casinos, pubs, clubs open back up across Australia and particularly in the US, we should see a resurgence of activity going through, hopefully a recovery in the margins, and a recovery in the share price. So that's one I think will do well next year.

Bella Kidman: Well, the vaccine is here, the recovery's on its way. Do you buckle up and take flight or are you going to stay in the terminal?

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