James Hall* consults two experts on whether stock market investing is still a good option with so many companies hit by the COVID-19 pandemic.
The Australian share market is delicately poised, leaving some investment experts believing now is the time to buy up stocks and reap the benefits of a looming snapback in prices.
The ASX200 has had a remarkable few months as the Coronavirus pandemic ground the economy to a halt.
It is in the rare position of being both a bear market, having plunged more than 20 per cent from its all-time high on 20 February, and a bull market after rising more than 20 per cent from its horrific depths on 23 March.
Market analyst at Bell Direct, Jessica Amir has urged Aussies to jump in, saying a recovery is a matter of when not if.
“Taking advantage of depressed prices can have a profound difference on your investment portfolio over the next five to 10 years,” she said.
“So don’t procrastinate, start today.”
The lay of the land is more nuanced than that, warns IG market analyst Kyle Rodda who believes equities remain at risky levels given the uncertainty surrounding the reopening of international borders.
He said investors should resist being seduced by companies inflicted with massive losses that are now tantalisingly cheap, such as Flight Centre and Webjet.
“While on the aggregate the market is overvalued, there are certain pockets where a savvy investor can take advantage of the change in macro-economic fundamentals and can still find value,” Mr Rodda said.
“I think that story will be led in the future by the mining-sensitive sectors, but also some beaten-up areas in the market that are still finding their feet in this recovery, which is the consumer discretionary space or real estate.
“It’s a time for nuance and careful thinking rather than expecting the whole market to turn around.”
Ms Amir says people should look for three things when considering investing in a company.
Is it part of a strong and growing industry, does it make money, and is its debt level low?
Most importantly, stick to what you know.
“Think about those companies that you interact with on a day-to-day basis that you might know something about,” she said.
“Pick about five companies and then go to a broker site and have a look at their research on those stocks.
“Ask yourself are they in a growing industry and are they likely to still be dominating their field in five to 10 years?
“Even if it’s a small amount, get started today and invest regularly into the market without trying to time it.”
Ms Amir says a handy tool for novice investors plotting a path to riches through the share market is to take a look at the best and worst performing stocks.
Coronavirus has undermined the indices in the last few months and will likely be the major influence for the foreseeable future.
Since the ASX200 reached its historic peak on 20 February, the best performing stocks have been utilities.
The lockdown created a reliance on the internet and electricity, healthcare for obvious reasons and consumer staples thanks in part to the infamous stockpiling of supermarket essentials.
However, gold miners have dominated as the price of the precious metal rose.
Evolution, Silver Lake and Saracen surged between 24.6 and 32.1 per cent higher.
Despite the strong returns, Ms Amir says value remains as the precious metal continues to rise.
“I definitely expect some gold players to be in the top performers moving forward,” she said.
Technology companies have also outperformed the struggling sector, with Appen, Nextdc and TechnologyOne rising between 19.6 and 17.9 per cent, while Afterpay hit an all-time high recently.
Unsurprisingly, the falls on the market far exceeded the gains.
Radio specialist, Southern Cross Media lost a whopping 82.6 per cent to be worth just 15c as businesses cut back on advertising spend during the pandemic.
Commercial property company, Unibail-Rodamco-Westfield took a massive 63.2 per cent hit as retailers were forced to close.
Webjet and Flight Centre plunged more than 70 per cent each as travel became forbidden.
Among this sorry list of worst performers, Ms Amir has singled out Southern Cross Media and Flight Centre as “ones to watch”.
“Flight Centre recently announced a huge restructure, and a big shift to the online world is going to save them a significant amount of cash,” she said.
“That’s something that’s going to go really well for them; as they drop their costs and the economy recovers and travel returns, their earnings and revenue will rise.
“For Southern Cross Media, radio and television demand is still there, it’s just organisations haven’t wanted to fork out to invest in ads.”
*James Hall is a financial reporter for news.com. He tweets @James_P_Hall.
This article first appeared at news.com.