Unearthing ASX Stocks Ready for ‘the Other Side’

As sports followers will know, the AFL season kicked off last Thursday. And just as abruptly, it came to a shuddering halt before the first round was even completed.

For those desperate for a distraction from the coronavirus, the postponement of the footy comes as a huge disappointment.

What are they going to watch now?

It was equally disappointing for the women’s competition. Their finals were due to get underway just as the whole footy world was put on ice.

In a normal season opener, there is a bit of a ‘back to school’ feeling. Back slaps and high fives in anticipation of the year ahead.

But the MCG had none of that. The MCG’s stands — capable of holding 100,000-plus screaming fans — were completely empty. Eerily and quietly, empty.

The only noise were the players and umpires. Every single word coming into your living room as if you were out on the ground yourself.

It’s a similarly weird feeling right now in the markets. Investors are rapidly trying to adjust to a new normal.

Up until a month ago, the market was priced for perfection. The hardest thing for an investor was trying to find value.

Now, things are obviously very different. Stocks look much better value now than they did a month ago, but the backdrop has clearly changed.

Because of that, defining value is subjective.

No one knows how this virus will play out tomorrow, next week or next month. Six to eight months from now? As we are now seeing, even the experts have differing opinions.

Whatever your take on this timeline is, will determine the backdrop you choose to gauge value. What seems like good value today might turn out to be an expensive acquisition tomorrow.

But equally, if things bounce back more quickly than expected, we could all be kicking ourselves for being too slow in adding some great stocks to our holdings.

Trying to predict a bottom right now (or anytime) is no more than a guess. Like many things in the market, it only becomes obvious in hindsight.

The good news for investors, however, is that they don’t need to pick a bottom. In trying to do so, it only causes a distraction.

Instead, what we need to do is get to work running through lists of stocks. That means hunting for value stock by stock — not just viewing the market as a whole.

While value was hard to come by only a month or so ago, value is becoming much thicker on the ground.

Take just one — Sydney Airport Holdings Pty Ltd [ASX:SYD]. For as long as I can remember, SYD has traded on a huge P/E. Often at 55 or higher.

For a stock that can only grow its revenue as its land and facilities allow, SYD was priced more like a high-tech growth stock.

While still high, SYD’s P/E is now around 26. Well above the market’s 13.2, mind you, but much better value than it has been in years.

When things turn around — and turn around they will — Sydney Airport will remain the primary entry point to Australia.

The same applies to plenty of other stocks, and dare I say it, even the banks.

Would you buy Westpac Banking Corporation [ASX:WBC] for around $30, where it was trading last year?

Westpac is trading less than half that now. Trying to pick how far it will fall is impossible. But at some point, it will find its base.

You don’t need to (and can’t) pick the bottom. But even if you get within cooee of that, you should be well placed to gain from the inevitable recovery.

It’s a similar story with BHP Group Ltd [ASX:BHP]. Trading at around $26, BHP is a long way below its 2019 high of $42.33.

You know that BHP will be around well into the future. It too is trading at much better value.

Again, you can’t, and won’t, pick the bottom for BHP. But as with Westpac, even if you get within a swing of it, you should be well placed to come out the other side.

As I say, no matter how many numbers you throw at it, ‘value’ ultimately is a subjective concept. If you believe that the whole global economy is dead, you won’t find a single stock with value.

All we know right now, however — as best as we can tell — is that at some point this will turn. Maybe six months away, maybe more, maybe less. Right now, we just don’t know.

When the balance tips, though, in favour of the majority seeing value across the board, the market will finally turn the other way. And given the violent sell-off, it could be a very strong bounce.

That means having conviction — long-term conviction — about stocks you want to own. And, just as importantly, remain prepared to own, through the volatility ahead. Because you won’t pick the exact bottom of this market…no one will.

It’s hard holding stocks through periods of strong volatility. Especially when a 400- or 500-point fall in the market has become the new norm.

But that is our task ahead. That is, to find stocks we want to own, that are trading below their long-term value. And in doing so, ready ourselves for the next cycle.

All the best,

Matt Hibbard,
Editor, The Rum Rebellion

PS: Lead editor here at Rum Rebellion, Greg Canavan, is busy too on the hunt for stocks offering great value. You can learn how to pick winning stocks in Greg’s free report, click here.


Matt Hibbard is The Rum Rebellion’s income specialist.

With nearly three decades in the markets, Matt has traded just about every asset class there is. The one thing that has stuck with him over this time is a very simple premise. That is, it’s the cash a company generates that ultimately determines its value.

Sure, some stocks might fly away to multi-digit gains. But unless these companies can convert the ‘story’ into real money, the market will eventually find them out. And when that happens, the share price quickly falls back to Earth.

Matt is also the editor of Options Trader, where he shows subscribers how to use basic options strategies to generate income. This is income they can generate on top of regular dividend payments.

Matt doesn’t play the prediction game, where the aim is to be proven ‘right’. Instead, his goal is to generate as much income as he can for his subscribers, irrespective of whether the market is going up or down.


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