Top stock picks for 2021: Who’s still got gas in the tank?
A year on from the worst share market crash since the Global Financial Crisis things are looking pretty good - the market has regained almost all of its losses, Bitcoin is going through the roof, and to keep us all entertained, Elon Musk has changed his job title to "Technoking".
For those courageous, perhaps foolish, enough to invest during the darkest days of the Covid crisis - before JobKeeper and JobSeeker were announced - the returns have, in some cases, been extraordinary.
And while there are some signs that we are in the midst of a speculative bubble - Bitcoin changing hands for more than $70,000 Australian for example - market watchers say there is still room for gains.
Perhaps the most prominent recovery story of the past year has been the Afterpay share price.
Few would have predicted that the Australian consumer's response to a pandemic would be to spend like crazy, but propelled by JobKeeper and JobSeeker payments, as well as early access to superannuation of up to $20,000, the Aussie shopper dug deep.
Afterpay has been a massive beneficiary, with its stock diving from the around the mid$30 mark to a low of $8.01. At its peak of $160.05 reached in February a savvy investor would have been looking at pretty much a 20 times return on investment.
Stocks in retailers have also done well, with Harvey Norman delivering a 150 per cent return from trough to peak, JB Hi-Fi about the same, and online retailer Kogan made the jump from $3.70 at its depths to $25.57 at one point, before moderating back to about $13.90.
Oil and gas companies had a turbulent year, with the price for forward delivery of oil at one stage going negative as US oil storages were booked to overflowing as consumption cratered.
Santos shares fell as low as $2.73 before recovering to more than $7 currently, while Beach Energy dipped as low as 92c, then bounced back to more than $2 in January.
The big miners also had a bumper year, with Fortescue Metals Group shares more than doubling from $9.21 to $26.40, no doubt helping its billionaire founder Andrew Forrest with his purchase of Adelaide-based shoe company RM Williams last year.
BHP stock has pretty much doubled from $25.69 to more than $50, with both miners a beneficiary of strong iron ore prices.
On the broader market, the ASX200 has not yet made it back to the levels greater than 7100 which it reached in January last year, but has bounced back strongly from a low of 4402.5 struck in March, to close at 6708.2 yesterday.
Montgomery Investment Management founder Roger Montgomery said while there were some areas, such as the Buy-Now, Pay Later sector, which was still making losses despite the huge company valuations, overall he did not think the market was overvalued.
"There's an ever-present risk of a setback in the market but I don't see it as a bubble bursting,'' he said.
"A broad market bubble that bursts is recessionary and I don't see that. I do think there's an ever-present risk of a 10-15 per cent fallback - that would present an opportunity I think.''
Mr Montgomery said there were investment themes both locally and overseas, "that have runways for growth that endure way beyond the short-term recovery from the COVID-inspired lockdown''.
Mr Montgomery said while there were some companies which had bounced on the recovery theme, and had now "done their dash", there were fundamental market shifts which still presented value.
An area which represented long-term growth was data centres, Mr Montgomery said, with companies such as Nextdc and Macquarie Telecom.
"Macquarie Telecom have a terrific growth opportunity, and a terrific opportunity to build a very boring, steady stream of cash flow rental income from signing up clients to a vastly expanded footprint for their data centres,'' he said.
Mr Montgomery said the share price in that case had pulled back, perhaps because people thought it was a COVID recovery stock, but that's "perhaps underestimating that the growth of that company is much longer than the shot in the arm from the COVID-inspired lockdowns''.
Mr Montgomery said he also liked Uniti Group, whose management team took M2 Telecommunications from 25c at listing to around $11 when it was merged with Vocus about a decade later in 2016.
Uniti also displayed "infrastructure-like" cashflow characteristics, and once it had done building out its networks, which were alternatives to the NBN in existing and new housing developments, it would control a large slice of the western Sydney internet market.
"Again, it's building an incredibly lucrative long-term, cashflow-generative asset.
"We think the market is undervaluing the length of its growth runway.''
Lanyon Asset management managing director David Prescott said his firm was shying away from stocks which could suffer if inflation "roars back''.
"In this environment we would expect to see a possible dramatic end to the prolonged distortion of capital markets, which has been fuelled from artificially low rates.
"Stocks that appear undervalued to us include Crown Resorts, who own world class, monopoly assets which will benefit from improved corporate governance in parallel with our expectation for thriving domestic tourism; Mineral Resources who have ownership of significant yet to be developed projects which will substantially enhance shareholder value and increase the earnings profile; and Evolution Mining where the market has totally misunderstood, in our view, the significant value that will be created from the acquisition of the Red Lake gold mine in Canada.''
Catapult Wealth portfolio manager Tim Haselum said the "usual suspects" for a post-recession rally have already run quite hard, and investors needed to make sure they weren't "too late to the party''.
"We recommend caution when considering the popular trades, such as renewables and green technology, rare earths, iron ore and certain obvious cyclicals,'' Mr Haselum said.
"For the next 12 months we like industrials such as Brambles and Transurban Group
"Both have been hit by the high Australian dollar, and both are well-positioned for reopening.
"From the travel perspective, our pick is Sydney Airport, which is a quality tangible asset that will eventually recover, versus some of the other web-based travel options which may not look that cheap post their capital raises.''
Originally published as Top stock picks for 2021: Who's still got gas in the tank?