Thirty FTSE 350 firms have lost 50pc of their stock market value in the past year but professional investors are still buying them.
What do they know that we don’t, and should retail investors follow suit?
Bowmore Wealth Group, a wealth manager, compiled the “50pc club” list and then Telegraph Money spoke to professional stock pickers and asked them which companies they are backing to bounce back.
Travel and leisure stocks made up a third of the 50pc club because of the devastating effects of economic lockdowns on their business models.
Low-cost airline EasyJet has had to cancel flights and refund customers. Investors have punished it, sending shares 56pc lower in value in the past 12 months, from over £10 a piece to £5 today.
But this attack from investors is unjustified, according to Mark Swain, of investment manager Smith & Williamson.
He has owned EasyJet through the crisis this year and supported it when it turned to investors to raise money. He said: “A crisis like this shakes up stock markets, but during them good companies become great companies and bad ones go bust. EasyJet will be a survivor.”
He argued short-haul flights would return far sooner than long-haul flights so EasyJet would be one of the first airlines to recover when travel picks up.
It has also taken steps to shore up its finances by cutting capacity and raising money from investors, he added.
“The cost-cutting initiatives are working. It is flying 50pc fewer passengers compared to last year but it has cut its capacity by the same amount, so its not flying half-full planes,” said Mr Swain.
Crucially, he noted that EasyJet’s price-to-earnings ratio, a measure of how cheap shares are relative to turnover, was around half its historical average at 6. In comparison, other low-cost airlines Wizz Air and Ryan Air trade at around 20 times earnings, according to Mr Swain.
Mitchells and Butlers
Like airlines, pubs and restaurants have also been forced to cut back business and in some cases, as in the spring, close completely and rely on the Government to pay wages.
Mitchells & Butlers is one of the largest pub companies in Britain, owning brands such as All Bar One, O’Neill’s and Browns.
Shares have plunged 60pc in the past 12 months and have remained flat, despite pubs reopening in the summer.
Neil Hermon, a fund manager at Janus Henderson Investors, said the selling had gone too far and the company was still a good investment.
“It owns over 85pc of its pubs as freeholds. Although current trading conditions are challenging the group has sufficient cash on hand to survive.
“Now the worst impact of the virus has passed there is no reason why it can’t return to historic profitability, especially considering there will be less competition when the economy fully reopens again. There is significant potential for the shares to rebound from current depressed levels,” he said.
Coach operator National Express’s shares are even more out of favour than airlines and pubs, falling 66pc in valuein the past 12 months. But it is a bigger and more resilient company than most investors realise and its shares are worth doubled their current value, according to Becky Lane, of stockbroker Jefferies.
On top of its well-known British operations, it has a big coach business in Spain and it is the second largest private sector school bus operator in America.
Ms Lane has a target of £2.80 a share. They trade at around £1.50 today.
“Longer term, there is lots of opportunity for National Express. We think schools in America will work with more private businesses for transport. American school buses are a $25bn (£19bn) industry, with only one third outsourced at the moment. National Express has recently won two school bus contracts from a competitor,” she said.
She acknowledged the uncertainty around the pandemic, but said the firm’s long-term prospects were intact and this was a cheap time to buy a high-quality, fast-growing and diversified transport group.
The oil sector has faced a perfect storm of lower energy prices and widespread rejection by “ethical” investors looking to decarbonise their portfolios.
BP shares are 30pc lower than in August and 60pc lower than 12 months ago. They are at levels last seen in the mid 1990s. Shell is facing similar issues and its shares are also at mid-1990s levels, having also fallen 60pc in 12 months.
At such low prices, some investors are licking their lips. There could also be a turnaround on the horizon.
This week, BP reported a profit of $86m (£66m) for the third quarter of the year, a significant improvement on the $6.7bn (£5bn) loss posted in the second quarter. This means it avoided its first quarterly back-to-back loss in more than a decade.
It is also making progress in increasing its share of revenues from renewables. It signed an offshore wind deal with Norwegian group Equinor and expanded its Chargemaster business by deploying over 1,000 electric vehicle charging points for Police Scotland.
Mark Nelson, of wealth manager Killik & Co, said: “We believe BP is amongst the best placed businesses within the oil sector to navigate the current challenging market conditions and to reposition to participate in, rather than be left behind by, the green energy transition.”
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