Discounted Stocks to Watch

Is Now the Time to Invest in Stocks? — Stock Market COVID-19 Crash

We can catch our breath for a moment.

US markets went into the green after the last session. The Dow Jones held above 20,000 points.

Now: can we get a rally that can last more than two days?

The odds favour it, in the short term at least.

The Good Lord knows that the central banks are going to run the printing press to astronomical levels to turn this tidal wave of fear and panic around.

That is bad right now.

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The Australian reports that Webjet Ltd [ASX:WEB] tried to raise money this week and couldn’t do so at any price.

Webjet has lost over $1 billion in market capitalisation since the coronavirus outbreak.

That’s a tough place to be as a company or shareholder.

This episode follows on from new ASX player Carbon Revolution [ASX: CBR]. It needs capital to keep operating.

But it had to drop from $2.10 to $1.50 a share to get the money.

You’d better make sure you know the financial strength of any stock you’re holding…

The bear market will take its pound of flesh somewhere

I expect to see quite a few companies in the small-cap space go bust in the next six months.

It’s surprising how little cash some ASX companies have in the bank.

Some get so low that they can barely get through the next quarter.

It’s going to take a long time before investors are willing to stump up more than chump change without a very solid business plan and outlook.

Unfortunately, many stocks don’t have that either.

One sector to follow here is cannabis stocks.

These were hammered last year and have raised hundreds of millions since the sector first got going.

Very few investors have much to show for it.

And these guys have hundreds of competitors in North America in the same leaky boat of negative cash flow, and lots of expenses.

I’d be staggered if they all survived this bear market.

But this is capitalism at work.

It culls the weak and misguided, and rewards the prudent and competent.

Bigger firms can buy up the discounted assets and grow stronger over time because of it.

I suggested yesterday to keep watching Medlab Clinical Ltd [ASX:MDC].

You could also add Ecofibre Ltd [ASX:EOF] to that watchlist.

These two cannabis plays have a good chance of going on to greater things over the medium to long term.

What else to consider?

The market surprising the world right now

You could also look at firms with revenues in US dollars. That is soaring currently. BHP and Rio Tinto naturally spring to mind here.

You might be surprised to know that iron ore is still trading around US$90 a tonne. And China seems to be moving out of the crisis.

My concern with mining stocks is whether the coronavirus will force them to shut or limit production.

It’s no good having high commodity prices and US dollar revenue if you can’t produce at all. We’ll have to see on that.

But there’s a clue to this line of thinking to another idea:

Chinese stocks.

It’s hard to believe that the country that (apparently) produced this virus has not seen its stock markets hammered.

Chinese stocks aren’t looking too shabby at all.

One reason is that they were already well down on their all-time highs before this began. They weren’t as primed to have the air punched out of them.

And, of course, we can’t be certain the Chinese authorities aren’t propping the market up in some way.

But if you’re a long term believer in the rise of China, as I am, then you could continue to investigate ideas and trends here.

My favourite bellwether Chinese company is Alibaba Group Holdings Ltd [NYSE:BABA].

It’s been hurt in price recently too. But its competitive position is so strong that you could take the long term view here.

These are ideas for your watchlist only. There’s no need to rush in anywhere.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch