The market has experienced unprecedented volatility, including a VIX reading that was higher than the GFC in 2008. It is important to understand stocks won't necessarily bounce back to where they were, and the age old saying of try avoid picking up pennies in front of a steam-roller is echoing throughout the market.
Having said that, if you were a pessimist and only consuming mainstream media, you would be adjusting your time frame on equities to less than a 5 year time frame, as you would not expect to live any longer.
The situation I find myself in is unusual, as I know 3 people with the virus. I am enrolled in professional courses where the University administering them have positive students. I also know many people in quarantine due to coming into contact with infected people. I am not trying to say I know a lot of people, but importantly it seems that the number of cases reported has been slow to be updated. I would expect for the Australian statistics the worst is yet to come.
Looking at the ASX, when buying stocks, I want to be buying the good cheap stocks, not the good expensive stocks that have had a large share price fall. When Donald Trump was elected in 2016, the ASX range for the week was 5178 to 5329 points. Today the market closed at 4782 points. If you factor in dividends, using the S&P/ASX200 Accumulation index (50,281.70), our market has not fallen that far (currently trading around 54,333). Similarly, the US stock market is not as low as it was in October 2016.
5 Stocks to Think About Right Now
I have outlined 5 stocks across the sectors where I see an opportunity to invest.
EOS - Industrials
Electro Optic Systems under $3.75 is attractive. The company trades on 17times and has 30 to 40% growth forecasted, which makes it look cheap amongst the high p/e ratio stocks. EOS receive their future sales, with the risk to the outlook being that contractors sales are not.
APX - Information Technology (Software)
Appen as a trading stock provides high liquidity and has been on our radar due to its high beta. Frequent spikes in price, on the market open and close, means that leaving an order ‘in the screen’ can take advantage of the stagnated ASX market open and scattered closing auction. Whilst the company trades on 29 times, they updated the market with 30% growth. On historicals, this stock is trading cheaply, across other industries not as much.
AMS - Consumer Discretionary
The recent price sell off in Aerometrex, which is incredibly drastic, provides a small opportunity to take a contradictory trade. Stressing the small parcel size of this trade, clients would need to understand the historical pricing volatility and that even though it traded at $1.80 not too long ago, it is unlikely to return to that level in the short term future.
GMG - Real Estate
As Barclays Sees It recently featured Goodman Group in their report. Trading under $11 the report saw value, as the stock was trading on 18 times and under its historical averages. GMG is one of the top 100 stocks in Australia, and is receiving revenue in the current ‘cash is king’ environment. On Thursday GMG suffered a 14% fall, something which brings stock onto our radar closely.
CLV - Materials
Clover Corporation has provided volatility this week in a predefined range, which before this morning’s trading I would have said take a nibble under $1.85. Further, top shareholders on this stock are a stalwart of Australian investors.
Taking a nibble
It is important that in these unprecedented times of volatility it is not about picking the bottom and the top, a wise man once said those that try too hard to pick the bottom end up with dirty fingers. The market has traded its circuit breakers (where they pause trading in the Futures market) more times than ever. Therefore using smaller trade sizes and understanding that prices may move quickly limits your downside. There is no crystal ball in markets, and therefore we don’t factually know if it is going up or down tomorrow. We do know that it is broadly 33% cheaper than a month ago.
And for those wondering, that is a 49% increase from today to return to those levels. Stay tuned for a statistical piece coming on what the markets are doing.
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