A leading investment bank has revealed the stocks that have been sold off more than they should have as a result of the continued outbreak of COVID-19.
In a report issued last week, UBS identified a valuation gap in a number of stocks based on the sell-off since January 23.
Webjet, Corporate Travel Management, Flight Centre, Qantas, Treasury Wine Estates, Vicinity Centres, Star Entertainment, Sky City and Sydney Airport have all suffered de-ratings due to the slowdown in tourists, overseas travel and exports.
Despite this, these stocks present as a possible buying opportunity for investors as they are forecast to recover well but will be heavily discounted in 2022.
UBS has factored in what it thinks is appropriate de-rating and fall in earnings in 2022 to reset fair value valuation. It sees a valuation gap in its assessment of fair value and the current price earnings multiple (PE) of the stock.
It says the economic impact of COVID-19 is set to be large and the losses in the ASX 200 over the last week is greater than what it would expect. But it will be temporary which is why it ranked the stocks based on the forecast price earnings in 2022.
UBS says: “We show the 2022 financial year earnings and PE de-ratings for these stocks has exceeded the ‘Fair Value’ sell-off driven by COVID-19.”
CommSec’s report on the interim profit season already is showing the effects of coronavirus on some of the stocks: Star Entertainment reported that visitor numbers were “near normal”; Qantas could see $150 million cut from its full-year profit; Vicinity Centres said foot traffic in its shopping centres had fallen since January.
Wilsons Advisory considers the current market situation as just a temporary dislocation in markets.
In a note to clients it says: “The only thing we know with confidence is that the acute phase of the COVID-19 virus is temporary. Economic and market impacts are unlikely to be long-dated or permanent.”
UBS analysed the effect of coronavirus on the ASX 200 by screening for the number of mentions of the virus in their ASX announcements, presentations and earnings calls.
Corporate Travel Management had 62 mentions of COVID-19, BlueScope Steel had 61, Qantas at 46, Blackmores had 38, Seek had 37 and Sydney Airport mentioned the virus 34 times.
UBS says: “We think COVID-19 exposed stocks could offer value if they fall further.”