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My 15 stocks that could even get Warren Buffett’s big tick

Peter Switzer
5 May 2020

While normal people enjoyed a slightly less locked-down Sunday in many parts of the country, with people in Sydney’s Bondi now allowed to bathe but not sun-bathe between 9am and 4pm, weird wealth-preoccupied weirdos like yours truly set the alarm for 6.45am to watch the Yahoo Finance broadcast of the Oracle of Omaha, Warren Buffett, live from the USA.

And I wasn’t alone having an unusual Sunday, with one high-flying fund manager catching up with me with his conclusion that Wazza hasn’t bought heavily yet, so he must think there is another leg down!

Of course, this stocks-desperate man could be on the money because Warren actually showed us what he did in April. He actually dumped $US6 billion worth of airline stocks from the top 4 airline businesses in the US! Before the pandemic struck, he liked airlines so much that he bought 10% of American Airlines, Delta, United and Southwest. But now he’s totally out of the mile-high club of big-time investors going long airline business.

His decision to sell would have coincided with the Wall Street market-players getting greedy after the stock market crashed until March 23 and as we all know, Warren does like to be fearful when others are greedy. This has led some, like my young fund manager, to think the Oracle was cashed up to wait for the next leg down.

And that might be true but Warren actually said (as he has many times before) that he doesn’t know what the market will do tomorrow or in a couple of weeks and even in two years. But he does know where it will be in 10 or 20 years. It will be a lot higher and this should be the big take-out for anyone hoping to buy Coronavirus-crushed stocks, which should be higher in maybe one or two years but could really be  higher in five years.

This is the question you have to use as a filter for working out what virus-hurt companies will eventually get back into normal business. And all these current stock prices will look crazy in the fullness of time. Remember, current stocks prices are a product of the fear and uncertainty that prevails right now. From late February to March 23, it was all about a crashing market, economies and businesses that were closing down and infection and death rates that ravished Italy were starting to infect the rest of Europe, the USA and us down under.

Then we saw the government and central bank rescue plans and also the death/infection curves that started flattening. And the US stock market rebounded 26% after a 34% crash!

Lots of fund managers expect another leg down and it wouldn’t surprise me but I doubt whether the next drop in the stock market indexes will be to the levels we saw in March.

So if you must get in at the lowest price possible, you might have to wait and hope the fund managers holding cash will be spot on. On the other hand, you simply buy now and think about two to five years down the track when your entry price into a Coronavirus-crushed stocks will mean very little.

I’ve been asking many of my 24/7 market watchers to see what stocks they like right now, so I’ll share them with you. And I’ll throw in a few of my picks that I think look like good long-term plays.

Mike Gable of Fairmont Equities (he’s a chartist or technical analyst) looks at the social distancing impact restrictions and the travel problems for casino goers, whose places of ‘worship’ have been closed down (just like churches have been). So he likes Aristocrat Leisure (ALL).

I checked ALL with the analyst surveyed by FNArena and they’ve tipped this company has 20% upside. The target price from these company-watchers is $29.11.

Julia Lee from Burman Invest likes the prospects of Woodside Petroleum (WPL) and you should recall that the turmoil for the oil industry and the collapse in oil and other energy prices was a turbo-charger for the stock market crash in late February-March. Clearly, Julia is looking down the time tunnel and seeing what should happen to oil prices in late 2020 and 2021 and therefore sees current prices as attractive.

Woodside Petroleum (WPL)

Interestingly, the CEO of Woodside Peter Coleman, described the COVID-19 impact on the oil market as “the worst situation I’ve seen for our industry in the 36 years I’ve been in the game.” But he and his chairman Richard Goyder say the company itself is in “good shape.” What I’m asking myself is: where will this company be when we kiss goodbye this damn virus? And does Buffett have an energy business? Yes, he does, and he’s not dumping it like he is airlines!

This stock was $36 in January and analysts see it at $24.40, which would be a 15.5% gain. It has already had a $6 bounce off the March 23 low and could be even more attractive if that other leg down comes along.

One sector hit by the virus is real estate. Online auctions and a worrying outlook for jobs and wages is never good for house prices. However, this could be a short-term blip and often very accurate forecasters like Coolabah Capital’s Chris Joye are tipping a return to a house price boom in 2021 and beyond, which makes a company like REA look like a Coronavirus-crushed stock that could bounce back. REA is now a $94 stock but the experts see it with 10% upside.

For those who believe that we will one day rediscover our addiction for overseas travel, two stocks that are there for the thrill seekers are Webjet (WEB) and Flight Centre (FLT). The former has 32% upside, if the analysts are on the money, while FLT has 33% out there in the blue skies of a no COVID-19 future.

I interviewed John Guscic, the MD of Webjet in early February, before the Coronavirus left China. His company had reported better than expected and his share price was rising. But he tipped the virus would infect his business but, like most of us, he would never have dreamed how infected the world and the world of travel would have been.

A year ago, WEB was a $12 stock a year ago and now it’s flatlining at $2.85. The runway before it takes off could be longer than you might think but this is a classic stock to buy, hold and hope!

Think about WEB as a long-term investor, who’s prepared to take a punt. If the share price goes to $4 in two years, that would be a 40% gain, which would be a 20% per annum return. And even if it takes four years, it would be a 10% return. And in a world of 1.5% term deposit rates, 10% looks attractive, albeit it is more risky. But as Warren would say, if you can’t “psychologically take” the ups and downs of stock prices, then the share market isn’t for you.

If you really don’t have the stomach for the volatility of the stock market but you want to participate in the bounce of the market as we throw off the shackles that the virus has imposed on business, then simply buy IOZ to ride the index up or CBA, Westpac (WBC), NAB or ANZ because their businesses have been beaten up by the virus and what they’ve had to do to help the economy’s rescue programme.

However, when economic growth returns, these businesses will see their share prices spike and you will eventually get good dividends, though it could be a year or two before that happens.

Finally, if you want to play in a safe space where there is a likelihood of a decent dividend in the year ahead, then look at BHP. Now at $29.84, the analysts think it can make it to $37, which would be a 24% gain.

I have to admit that I’ve been buying since March 30 because I lacked guts on March 23, when the low point of the market crash was hit. But if there’s another leg down, the stocks above will be on my buying list, along with Macquarie (MQG), Magellan (MFG) and WQG or WCMQ, a US-based fund that has an amazing track record. These latter stocks, along with IVV — an ETF for the S&P 500 — can give you good exposure to foreign/US market gains, which lately have been superior to the local share market.

So running through my list above, here’s the line up:

  1. Aristocrat (ALL)
  2. Woodside (WPL)
  3. REA
  4. Flight Centre (FLT)
  5. Webjet (WEB)
  6. IOZ to ride the index up
  7. Commonwealth Bank (CBA)
  8. ANZ
  9. NAB
  10. Westpac (WBC)
  11. BHP

And if there’s another leg down:

  1. Macquarie (MQG)
  2. Magellan (MFG)
  3. WQG or WCMQ
  4. IVV

I think Warren Buffett would give this lot a tick of approval for a long-term investor.

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