Last year was great for stay-at-home stocks and a lot of tech stocks gained friends and higher prices. But 2021 is becoming positive for reopening trade stocks, such as travel, casino and other beaten up businesses such as banks (which were enlisted in government-led rescue programmes).
There’s also a group of companies benefiting from the likely strong uptick in the economic cycle, with the success of the vaccination programmes around the world telling us that a global boom is likely. This is why the US bond market has spooked stock markets this week — the stronger-than-expected recovery is pushing up yields (or interest rates) on 10-year bonds, which are important for home loans.
I pointed out in this Report on Saturday that AMP Capital’s Shane Oliver noted that “resources companies are now expected to see 52% earnings growth this year…and…the biggest upside surprises and earnings upgrades have been for media companies, banks and retailers, attesting to the cyclical upswing in the economy.”
But what companies will be beneficiaries of the vaccinations currently spreading globally like a virus?
1. CSL: our biggest company
An easy one to pinpoint is CSL that has had its normal business practices derailed by the Coronavirus. The Australian company makes most of its revenue in the US and plasma collections are typically from lower income people who get paid for their blood. However, the infections crisis and high death rates in the US have disrupted this company’s usual business model and, in part, explains this chart below.
CSL
The company also is facing the headwind of a rising Aussie dollar, which means when the US earnings are converted into the local currency, the reported profit here is less.
The current share price is around $262 and the consensus of analysts think it should be a $302 stock, which suggests there’s a 15% upside.
The range of prices put forward by different analysts starts at $276 from Morgan Stanley to as high as $330 from UBS.
2. The tale of Avita Medical
Another company frustrated by the disruption of the Coronavirus is Avita Medical, which is not only listed here but also on the Nasdaq stock exchange in the US.
Locally, the stock price is $5.97 and here’s the chart over a 5-year period.
Avita Medical (AVH) five years
In the US, the ticker code is RCEL. CNN Money has a pretty positive outlook story for the company. At the time of writing, the share price in the States was $US21.73 and this was price forecast: “The 7 analysts offering 12-month price forecasts for AVITA Medical Inc have a median target of 45.00, with a high estimate of 60.00 and a low estimate of 30.23. The median estimate represents a +107.09% increase from the last price of 21.73.”
And this was the analysts’ recommendation: “The current consensus among 8 polled investment analysts is to buy stock in AVITA Medical Inc. This rating has held steady since February, when it was unchanged from a buy rating.”
And if they buy it in the US, they’ll buy it here. The local share price is $5.97.
3. The Sonic story
A local company that has undoubtedly had its business model disrupted is Sonic Healthcare Limited (SHL). The analysts calculate that the company has a 17.8% upside. Of the seven financial groups that assess the company, there are two neutral views and one hold on the share price, which at the time of writing was $31.73. But all seven analysts were above $35 in their predicted price. Credit Suisse sees it at $40!
Sonic Healthcare is one of the world’s largest medical diagnostics companies, providing laboratory and imaging services to medical practitioners, hospitals, community health services, and their collective patients. We also operate Australia’s largest network of primary care medical centres—Independent Practitioner Network (IPN)—as well as other healthcare businesses.
Sonic operates as a decentralised federation of companies, where the CEOs of individual companies have the autonomy to run their medical practice in the way that’s best suited to the local market and the doctors and patients whom they serve.
As vaccinations kick in, business normal will return for SHL, which should be a plus for revenues and profits.
4. What’s the story with APPEN?
A company away from the medical space but has been hit hard by the pandemic problems in the US has been Appen (APX), which at the time of writing was a $16.69 stock. But the analysts see it heading towards $22.23. That’s a potential gain of 33.2%, if they’re right.
Five analysts look at APX and only Macquarie sees the company struggling in the near term. Ord Minett thinks it should develop into a $24.75 stock. Citi is the most bullish on the company, calling out a $30.90 share price.
“Appen is a global player in provider human-annotated datasets, including speech, text, image and video for machine learning and artificial intelligence. It works in over 180 languages with a global base of more than 1 million contractors. Some of its clients are the biggest tech companies in the world.”
The company warned the market that the Coronavirus would hurt earnings “with a slowdown in digital ad spending, IT spending, reductions of services from smaller customers, interruptions to global supply chains and the suspension of face-to-face projects such as audio data collection.” (www.raskmedia.com.au)
As vaccinations are rolled out in the US, more normal business conditions should eventually materialise. And this should counter the negative forces that have hurt Appen in 2020.
Appen does earn most of its income overseas, so it does have a currency issue, with a rising Aussie dollar. And there are suggestions that new rivals could progressively eat Appen’s ‘lunch’.
Clearly, the analysts who study companies such as Appen don’t agree, given the projected 33.2% upside they predict. The chart below shows you what the market thought of Appen before we heard of something called COVID-19.
Appen (APX)
A charts’ expert would say this company is not ready to rebound so it could take some time to turnaround market sentiment. But at its best, this was a $40 company and now is under $17. And if it went to $25 in the next year, that would be a near 50% gain. I’d wait two years for that kind of gain!
5. Star Entertainment Group: a no brainer
A no brainer beneficiary from vaccinations bringing back normal business and holidaying conditions, away from the travel stocks that have already spiked, is casino business Star Entertainment Group (SGR). The analysts think there’s a 9.1% upside but I think that looks conservative.
I would’ve liked Crown Resorts, which the experts think has 7.4% upside, but I think they’re underestimating the potential negative effects of the upcoming Royal Commission.
Star will have to wait for the Asian gambling tourists to arrive in 2021, but interstate tourism will be good for this business, with borders now open and bound to stay that way after a big chunk of us get jabbed.
Star (SGR)
This company was a $6.38 company in 2019 but before the Coronavirus effects, it was priced at $4.70 and is now $3.69. This looks like a safe gamble.
Event Hospitality: caned by Covid
Another company which the analysts surveyed by FNArena is Event Hospitality (EVT), which has been caned by the Coronavirus. It’s currently at $11.46. The tip is that it has 10.3% upside, but, over time, there should be more.
Before the pandemic was declared, EVT was a $14 stock and it’s now at $11.46, which isn’t bad, considering it’s in hospitality. Look at its businesses:
Event Cinemas; Moonlight Cinema; Greater Union Cinemas; Rydges Hotels Resorts; ATURA Hotels; Thredbo Alpine Village and OT Hotels Resorts.
EVT
This was a business destined to be crushed by the Coronavirus and has to be a beneficiary of vaccinations. The chart above shows what’s likely to be out there for its share price.
7. One of my ZEETs: Elmo Software
My last company that I and the analysts expect to do well over the next year is Elmo Software (ELO). And yes, it’s a part of my ZEET stocks, where two out of the four performed. However, the experts tip a, wait for it, 86.5% gain!!!!
Even if they’re only a quarter right, I’d be happy. Sure, I’m invested in ELO (down 18.6%), as I’m in Zip (up 181.6%), EML (up 39.29%) and Tyro (which did have a technical problem and an unfair short-seller report that hurt its share price). Tyro lost 20.32% but seems to be on the comeback trail.
I have been surprised that media reports say the company was advantaged by the stay-at-home phase of the stock market but I interviewed the company’s CEO, Danny Lessem, who said it was no help.
This company was built on serving medium-sized businesses helping them with HR and payroll matters. Lessem says these companies’ CFOs were into cost-cutting not expanding their software solutions. But he expects vaccinations and the move towards normal business conditions will help them expand their sales.
And recently they’ve added new businesses that will help them tap into the small business market. The first is called Breathe, which is a fast-growing, scaleable HR platform for small businesses, based in the United Kingdom and will also be brought here. Then there was the acquisition of Webexpenses, a high growth, cloud-based expense management solution, based in the United Kingdom (UK). The acquisition provides ELMO with highly complementary technology, as well as a large customer base, accelerating ELMO’s mid-market expansion in the UK.
Expense reduction is something all businesses would see as useful and looks like a sensible addition to ELO’s collection of offerings to SMEs.
Either the analysts are smoking something with their 86.5% upside call, or they’re seeing things that the market, worried about tech stocks, is missing.
I’m sticking with ELO.
Elmo Software (ELO)
A final word…
By the way, despite the negatives in my ZEET group my numbers guy tells me ZEET is up 45.08% since I put them together and wrote about them in June last year, compared to the S&P/ASX 200 Index, which is up 17.10%. I like those kind of numbers.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
