As 2020 winds up, Stockhead has reached out to its pool of contributing experts for their view on what they hope 2021 will bring. Today’s question is: What stocks are likely to benefit from a COVID-19 vaccine in 2021 and why?
See if you can pick the theme.
1. Niv Dagan – Peak Asset Management
Cyclicals will continue to rally in 2021, as interest rates remain low and stimulus picks up. Technology will continue to be a key talking point and the “digital economy” will open a lot of opportunities.
2020 was the year of the BNPL but in 2021, it is the year of the “green economy”. Secos Group (ASX: SES), which is taking corn starch and turning it into nappies, bin liners and bags should benefit. Hazer group (ASX: HZR) and Tymlez (ASX: TYM), focusing on renewable energy, hydrogen and technology – will also see higher stock prices.
Travel stocks such as Webjet (ASX: WEB), Qantas (ASX: QAN) and Flight Centre (ASX: FLT) will have a major uplift, especially in Q1 as the economy picks up.
2. Hedley Widdup – Lion Selection Group
The ones that developed the vaccine!
Ostensibly, it’s likely the market will become more confident about the future for stocks punished the most by the shutdown of the world in response to the pandemic. Think airlines and cruise companies, even if that is a narrow example.
BUT – I expect to see volatility around the new cycle and market around just how effective a vaccine will be in returning us to “life as normal”. There has been an extraordinarily high level of political will to see a vaccine deployed – this has cleared red tape (and it’s a relief to see that is possible) but also compressed testing regimes that would take years under non-emergency conditions.
There may be times the market seems to wonder “does the vaccine work?” Clearly, from a very hastily developed vaccine there is a risk of unexpected side effects, and as we have seen multiple examples of equity market relief when there was news (just news for Christ’s sake) of a potential vaccine during 2020, I would expect there to be potential market weakness around “news” of potential side effects.
So I don’t think it is anywhere near as simple as vaccine equals risk-off.
3. Donna Warner – Barclay Pearce
Travel stocks and tourism-related businesses were the hardest hit by the COVID-19 pandemic and will benefit the most from a vaccine in 2021 as international borders reopen. Travel names such as Corporate Travel (ASX: CTD), Flight Centre (ASX: FLT), Webjet (ASX: WEB), Sydney Airport (ASX: SYD), and entertainment stock Ardent Leisure (ASX: ALG) are ASX-listed companies that should see strong performance.
As the manufacturer of vaccines in Australia, CSL (ASX: CSL) will also be a major beneficiary from the Covid-19 vaccination rollout.
4. Josh Gilbert – eToro
The travel industry is expected to be the main successor from a COVID-19 vaccine in 2021. Not only will the vaccine allow people to travel around the world as they wish, but it will help the industry revitalise itself to its position prior to the pandemic.
As obvious as it may be, pharmaceutical companies will also benefit from the vaccine. As Pfizer doesn’t currently have the logistics and supply chain capabilities to deliver the vaccine globally, this opens doors for a wide range of other pharmaceutical companies to take the reins when it comes to vaccinating the world through 2021.
5. Tim Buckley – Institute for Energy Economics and Financial Analysis
In emerging markets like India and ASEAN, renewable energy developers will benefit from a surge in wind, solar and battery project pipelines as economies start to recover from the demand destruction wrecked by Covid-19 in 2020.
For the very brave in India, short Adani Green as a leader that is massively overhyped and go long Sterling & Wilson, a world leading solar EPC firm.
6. RaaS (Finola Burke, John Burgess, Melinda Moore, Andrew Williams)
To state the obvious, travel & leisure stocks (Qantas, Webjet, Corporate Travel Management, Flight Centre) should benefit but with markets looking forward, much of the recovery will be priced in.
With a rising AUD, we would be looking at domestic stocks that benefit from a higher Aussie, did not see a material boost from COVID, have few exports and don’t translate offshore earnings.
Base metals and industrial metals – especially gold, silver and copper – should also benefit from improving economies, and especially if the renewables rollout continues. Mining services companies such as Mitchell Services (ASX: MSV) – an above ground driller of gold and other base metals – should also benefit. They’re on track for FY21 EBITDA of $40m. The environment for production drilling is solid/improving and with a market cap of $105m and debt of ~$30m, they’re trading at a modest EV/EBITDA multiple of 3.5x.
On the same theme, Swick Mining Services (ASX: SWK), are more impacted by COVID than MSV due to its exposure to the US and Spain. They’re looking to split their mining services and technology businesses, and it will become apparent that the mining services business is trading at ~2.0x EBITDA and up to a 30% free cashflow yield.
The technology business is difficult to value but the group has spent $20m developing the technology and will derive first revenue in 1H21. You are buying this business for free, although it is losing $5m-$7m per year (including amortisation).
Oil and gas prices are projected to go up and this should lift the whole sector and as we already discussed, we are of the view that the Federal Government’s “gas led” energy policy will benefit Australia’s gas players. That means Santos and Origin Energy at the big end, but for more direct exposure and benefit, look to Cooper Energy (ASX: COE), Empire Energy (ASX: EEG), and Armour Energy (ASX: AJQ).
As a left field thought, medical services, (pathology and screening stocks) could receive a boost as more people return to looking after their health. There have been reports of a drop in cancer, heart disease, breast screenings during 2020, next year could see a pick-up in demand for these screenings as people play catch up with their lives.
7. Gavin Wendt – MineLife
I think it will be the energy sector, specifically oil stocks, as if there is any prospect of some sort of return to normality in the travel sector, then oil will do well, i.e. increased consumption of aviation fuel.
We’ve already seen oil as the star performer in late 2021 on COVID vaccine hopes.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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