While the overall market continues to push higher against a tempest of macroeconomic headwinds, several darlings have recently been struck down by the perfect storm. 

In this episode of Buy Hold Sell, we’ve invited James Gerrish of Shaw and Partners and Roger Montgomery of Montgomery Investment Management to discuss four stocks: 1) A travel company that's divided market opinion, 2) A growth stock Roger has nominated as the “highest quality company in small-cap space” (but one James is avoiding), 3) A turnaround play in the energy sector, and 4) A beaten-down miner that James reckons has good prospects in 2020.

Notes: You can access the video, podcast or edited transcript for this Buy Hold Sell episode below. This episode was filmed on 12 February 2020.

Edited Transcript

Jessica Amir: Welcome to Buy Hold Sell brought to you by Livewire Markets. Today we're putting stocks under the microscope that have been sold down since the coronavirus outbreak, and talking about stocks that look like they could be of good value. I'm Jessica Amir from Bell Direct. With me today is Roger Montgomery from Montgomery Investment Management and James Gerrish from Shaw and Partners.

Corporate Travel Management (ASX:CTD)

Jessica Amir: Let's start with the travel services business, Corporate Travel Management. What do you think James? Buy, hold or sell?

James Gerrish (Sell): Yeah, I think it's a sell. It's trading on 52-week lows. It's been hit obviously in the last 12 months. I think there are risks around its earnings, first-half earnings, that are coming out very shortly. In any case, they're going to have a big second half skew to earnings, so it's a sell for me.

Roger Montgomery (Sell): It's down 54% from its highs. I agree with James. We have it as a sell. The reason being that we just, because of that second half skew to earnings, we just don't believe management when they say that coronavirus has had no impact. We've conducted some channel checks. We can't find, for example, in the healthcare space, a single company in Australia that hasn't pulled back on corporate travel. And they're all having team meetings online and on video chats. They're not travelling overseas. So, I find it disingenuous to believe that there's going to be no impact at all. So for me at the moment, coronavirus just adds to a long list of headwinds for the corporate travel sector, you know, Brexit, lower consumer spending, and so on. So, it's a sell.

IDP Education (ASX:IEL)

Jessica Amir: All right, let's stay on you, Roger. A company that helps international students study here in Oz, IDP Education. On the day that they announced their results, their shares saw a massive 30% jump almost. What do you think? IDP, buy, hold or sell?

Roger Montgomery (Buy): Yeah, we think it's a buy. And the reason why, even though it's rallied so hard and we were buying it in weakness, it's the biggest position in our small companies fund. The reason why is pretty simple. We think that they're on the cusp of very, very strong rates of growth, circa 25%, for the next three or four years, and that's because of the investment they made in hot courses, which has increased their lead flow and their commencement flow. And we're just seeing the start of that now with the first batch of students starting university and the first payments received by IDP. So for us, it's a buy.

James Gerrish (Sell): I'm going on the other side. I think it's a sell at these levels. It's rallied 30% after the first half result. There was a discussion around the impact of coronavirus not being evident, in terms of earnings. I think that will become evident in earnings over the next six months. And I think it's a stock that you want to get ahead of the pack in terms of selling rather than waiting for that impact to come out. So, it's phenomenal growth, but it's a sell at the moment.

Santos (ASX:STO)

Jessica Amir: Let's mix it up. Oil and gas producer Santos needs no explanation or introduction. Roger, what do you reckon? Buy, hold or sell?

Roger Montgomery (Hold): Yeah, look, it's on new five-year highs. Kevin Gallagher has done an amazing turnaround of that company. It's able to operate sustainably on lower oil prices. There are going to probably be oil, lower oil prices, if this outbreak continues. The coronavirus outbreak, obviously. But for me, given it's on highs at the moment, it's a hold.

James Gerrish (Buy): I've got it on buy at the moment. It's come back about 11% from recent highs. So, the oil price has come back around 25%. So Santos has been relatively resilient. It's been relatively resilient because it's got a really strong production profile. They've got some really interesting exploration assets over the medium to longer term. So, it's a buy for me.

IDP Education (ASX:IEL)

Jessica Amir: And we asked the guys to bring in a stock that they love at the moment that looks like it could be of value. Roger, let's start with you. What did you bring along today?

Roger Montgomery (Buy): Well, I brought along a stock that we've already talked about and that's IDP education. It is very capital light, high return on equity business. What we like about it is that we... Look, I'll say it this way, we think it's probably the highest quality company in the small-cap space at the moment, and we know that there's been 40% growth in applications. There's been 30% growth in commencements in the first half. There's probably 50% growth in lead flow, and that's ultimately going to generate growth of about 25% over the next three to four years. They've only just started receiving payments from students commencing university that came through the pipeline 18 months to two years ago. That's going to accelerate quite dramatically, and I think the increase in performance from this business is going to surprise those who think that it's expensive already.

OZ Minerals (ASX:OZL)

Jessica Amir: All right. James, what have you got for us? What's looking hot?

James Gerrish (Buy): Yeah, beaten down Oz Minerals. It's been hurt, obviously, by the back of the coronavirus. Copper's being trading lower as a consequence of lower expectations around global growth. This is a business that's now done five consecutive years of beating in terms of production. They did a lot of work in 2019 that will bear fruit in 2020. So, Oz Minerals is a buy for me.

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• And here, they have a conversation about 'Healthy strategies for infected markets'