This conversation was split from another thread. Please feel free to add any picks and ideas for beaten down stocks which you think will stage the strongest recovery with the economy returning back to normal.
A word of disclaimer - these are nothing but bets. Risk of bankruptcies, share dilution, dividend cuts, years of losses or stagnating income are a real thing here. Markets are very efficient at pricing risk, which is exactly the reason why these stocks lost so much during the Coronavirus crisis. None of these picks should be considered investment advice.
Maybe it would be easier to start with by making the case of which sector/industry will recover faster and then identifying a company in that field that looks better than the average. Like this we could have a more focused conversation.
Here are some examples:
Energy / Oil companies - big companies are affected by the low oil prices but will survive and eventually recover. RDS is an example. Smaller companies or companies with high debt are in trouble.
Transport / Oil tankers - oil tankers had a very good year so far due to increased oil storage demand. I like EURN here.
Finance/ Banks - big national banks too big to fail should come out of the crisis just fine. Some European banks, although less capital/margin efficient than US banks should be less affected by the crisis (lower unemployment in EU, less risky loans, less oil exposure, less reliance on credit card predatory fees). Here I like ABN.
Finance / Insurance - Impact of COVID on insurance claims is significant but I feel it does not fully justify the low valuations. I did not see any insurance company actually in trouble so they should eventually recover. SREN looks decent in this space.
Aerospace - The major manufacturers (AIR and BA) + other defence-oriented companies should eventually recover. I saw RR above - I am skeptical of it but would like to hear the thoughts of others.
Consumer discretionary / auto - Big car manufacturers should eventually recover (BMW, WOW3). TSLA is too pricey for me.
Fair point. Having the conversation split from another thread was not the smoothest start into the topic.
I picked my sectors to be concentrated into Retail, Travel&Leisure, Aerospace and Automotive.
I am not brave enough to make my pick in the energy sector. Too loaded on geopolitics. I would prefer exposure to these markets via ETFs such as XLE and XES. Big companies such as BP or XOM are the safe bets, but with no risk comes less upside potential.
Banking sector is problematic with the long term low or negative interest rates. As it seems, yesterday’s (11.06.2020) selloff was triggered by the largest ever single day outflow on record, -$2.15B, from XLF, exactly the day after Powell announced that rates will stay low throughout 2022. Are there any reasons to expect above average returns from European financials? I honestly don’t know. FRA:BNP and FRA:GLE seem to be doing quite ok last month. FRA:DBK is on fire.
Agree with insurance, but is there a lot of upside and possible outperformance there?
I dare everyone who thinks they can time the market to consider buying HTZ stocks.
They are bankrupt but still have a market cap of half a billion. The stock is priced at less than 3% of what it was 6 years ago (what a discount!!!).
If you believe that they will survive this (because of government bailout or because of speculative investors such as yourself), you could possibly make incredible returns.
Totally agree with you in general! In particular to oil companies I also think that smaller fish will be eaten by bigger ones and there’ll be a consolidation in the industry. Imo the world will still rely on oil at least for the next 15-20 years.
This one is the current star in my stock picking (i.e. gambling) portfolio
Other, less fortunate current picks are (all US): FCN, JAZZ, QIWI, PE (which was the star before TUI1 outshone it, but I still believe in it). Had others that fared good too, but this was due to the general bullish trend not my amazing stock picking skills acquired/developed in the last 2-3 months
This is a chapter 11. It is called a type of bankruptcy but it is actually only a more advanced/serious stage of an “[fr] assainissement” (not sure “sanitation” works in that context), not a “real” bankruptcy.
I don’t expect EU financials to perform better than before. My thesis for (some!) EU financials is that their valuations took a bigger hit while they are expected to be less affected than US financials.
Using BNP as an example, the stock price went from 29E in March to 13E 1 month later. Similar story with DBK. It is true that the valuations for these 2 recovered significantly in the meantime so now is debatable if these are still good deals. GLE, ABN prices prices still did not recover so these might be more interesting.
Regarding insurance companies, let’s pick SREN for example. I see it as a solid company with a long history, excellent long term prospects, low debt, solid business model, etc. Let’s say they will have 0 earnings for the next 2 years (current predictions are much better but things can change if COVID comes back). The stock price was until recently at a ~50% discount. I thought this is a bargain over the long term so I got some. My expectation is that price recovers in 2-3 years plus they have decent dividends on top.
I would really like to hear counter arguments. I would also be interested to hear from someone with more in-depth knowledge of other insurance companies (AIG for example).
I definitely have no in-depth knowledge of insurance companies, but I advise you to read about the history of AIG during the last financial crisis in 2007-09. They had to be rescued by the government. Which also saved Deutsche Bank somehow.
But that’s just food for thought. Pick your own poison
Chapter 11 bankruptcy proceedings in the US hold bondholder claims above shareholder claims. In most cases, this results in complete wipeout of shareholder equity.
Seeing the stock market mania with retail investors, HTZ basically decided to get crowdfunded offering nothing in return (other than enormous share dilution). And got approved by court yesterday! This is unprecedented.