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3 Stocks Investors Should Keep An Eye On In A Bear Market

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

The ASX briefly entered a bear market today, after the index fell more than 3% at the open. While the market is up for the day at the time of writing, it is still a far cry from the highs above 7,000 points which we saw a few weeks ago. While most businesses have sold off, there will most certainly be some that rebound faster than others.

Tech stocks are one example of a group of companies that typically sell off faster than the market. While this could position them for a large rebound if the market comes back to previous highs, it also increases portfolio risk if they take longer than expected to recover. Another issue is that the volatility works on the downside as well as the upside. For instance, if markets fall another 20%, some of these tech stocks could easily fall an additional 40-50%. This is an important consideration for investors who can’t stomach the volatility, either financially or emotionally.


Megaport Ltd.-1         QAN-2      Webjet Ltd.-1 


Megaport

Megaport is a $1.73bn ASX listed interconnections company with 3 layers of growth: growth in cloud computing broadly, expansion of the interconnections sub-market and Megaport’s increasing penetration of the interconnection space. The firm’s network effect has taken years to develop, and any new competitor would be left offering an inferior product to Megaport until it reached the same level, creating enormous barriers to entry.

This results in a sustainable competitive advantage and leads to high-quality future earnings. Megaport does not restrict users to one data centre operator or cloud service provider, offering an attractive value proposition. This technology also allows consumers to rent server space when they need it, and design customised cloud storage solutions. Users with elevated data requirements for short periods only need to rent space temporarily, as opposed to a whole year with traditional data plans. While their main competitor Equinix offers a similar product, Megaport is winning mid-market clients on pricing.

Qantas

Project Sunrise, an ambitious plan to make 20-hour flights more comfortable for passengers, could increase their value proposition to consumers. Demand for direct flights from Australia to the US are particularly popular amongst the time pressed business travel market, and Qantas could increase market share by developing a strong competitive advantage in that space. Market recognition of the superiority of Qantas’ service as compared with major US carriers enables them to more easily grow market share in ultra-long-haul travel routes.

Webjet

Webjet is an online travel agency that traded at a rich valuation prior to the Coronavirus outbreak. As consumers slashed travel expenditure, the industry tanked, and the company’s share price went with it. The company recently entered the B2B market, competing directly with companies like Flight Centre which have historically dominated that market. The business is recording 46%p.a. NPAT growth, on a relatively unassuming PE ratio of 23. While future earnings growth is far from guaranteed, particularly in a sector that has been heavily hit recently, the company looks attractive if the spread of COVID-19 turns out to be less severe than the scenario that investors are pricing in.


 

Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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