Buying out-of-favour

[moneybagz]

I'm tempted to buy a small portfolio of out-of-favour stocks (10% of my portfolio). On my list of potential companies I've considered:

Whitbread
Carnival
International Consolidated Airlines
Rolls Royce
Lloyds

Most of my portfolio consists of Index ETF's but I like to have a punt now and again. As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger on these Corona damaged equities?

Cheers

[tikunetih]

As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger

"Maximum pessimism" will be when all respondents think you'd be crazy to buy - and when you too also believe you'd be crazy to buy and are too afraid to act.

In short: it's often insufficient to observe that others are fearful - you also need to feel that same fear but find a way (eg. by reference to System 2 thinking) of acting contrary to those feelings.

[TUK020]

I'm tempted to buy a small portfolio of out-of-favour stocks (10% of my portfolio). On my list of potential companies I've considered:

Whitbread
Carnival
International Consolidated Airlines
Rolls Royce
Lloyds

Most of my portfolio consists of Index ETF's but I like to have a punt now and again. As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger on these Corona damaged equities?

Cheers

OK, so assume that the markets that these players operate in recover in 6 months, vaccine etc, which means that there is the possibility of these recovering.
Which of the above players have the balance sheet strength to ride out the pain without becoming mortally wounded?

[UncleEbenezer]

As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger

"Maximum pessimism" will be when all respondents think you'd be crazy to buy - and when you too also believe you'd be crazy to buy and are too afraid to act.

There were a few posts here expressing similar thoughts when the markets crashed in March. I just revisited my own post from then, which mentions one of your candidates (Whitbread), and I note you'd currently be sitting on a gain just north of 10% if you'd bought WTB back then.

Note that 10.6% is an underperformance from that point of maximum fear.

[Dod101]

I'm tempted to buy a small portfolio of out-of-favour stocks (10% of my portfolio). On my list of potential companies I've considered:

Whitbread
Carnival
International Consolidated Airlines
Rolls Royce
Lloyds

Most of my portfolio consists of Index ETF's but I like to have a punt now and again. As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger on these Corona damaged equities?

Cheers

No Board like this is going to give you the 'right' answer to this sort of question. No one knows. What if the replies say, yes why not? Is that going to help you? In this sort of situation you really need to decide for yourself. What is your timescale? What if at least one of them went bust?
You also have to me quite a spread between Lloyds (Bank, I assume?) and Whitbread and the three which are most affected by the travel slump, Any one of the latter three are vulnerable to disaster depending on how long the current disruption lasts and the timescale for recovery.

Dodf

[IanSmithISA]

Good morning,

I am quite a fan of short term holding and companies that are under valued, but one thing that I have learnt is that there are very few undervalued companies out there.

Most apparently undervalued firms are in fact fairly or even still overvalued so you need to make a very strong case for why the market is wrong.

Looking at RR, the civil jet engine division is in big trouble, there are the issues with the Trent 1000 engines designed for the Boeing 787 with a costs of around £2.1bn overall. A massive collapse in revenue from maintenance of jet engines and foreign exchange hedge costs (another £1bn?) for this expected revenue over the next few years which is due even if the invoices aren’t issued. Share issue is under consideration.

IAG are in the middle of a 3 for 2 share issue raising a couple of billion.

Lloyds are primary a retail and small business bank and nobody really has the faintest idea just how much bad debt the anti COVID measures have built up and for many these measures are still strangling business.

I haven’t looked at Carnival what do you see in a business that has massively expensive assets that are idle?

Whitbread recently did a £1bn rights issue and the current market cap is just over £4bn and are talking about making 18% of their staff redundant.

So I would be worried that you are seeing a share price and business name that looks attractive and are under concerned by the issues that are affecting the fundamental business.

I say this as someone who held Woolworths shares when they collapsed as I didn't believe that they would close before just before Christmas.

On the other hand I like Amigo Loans as a high risk share and whether or not you agree with my interpretation you can see at

http://beginnerssharedealing.co.uk/Comm ... icker=AMGO

that I have been following and thinking about the company for a long while now.

The basic problem is that the company floated a couple of years ago with the founder keeping 60% of the shares and a non-interference agreement with the board.

Amigo offers loans at 49% to people who can get a guarantor, but had an unusual role for the guarantor, instead of being there to repay the loan as a last resort, they were expected to make the monthly repayment within a few days of it being missed by the borrower.

The has led to arguments with the FCA/FOS that Amigo were making loans that they knew were unaffordable by the borrower and didn’t care because the guarantor would make the repayment.

JB/Richmond Group started blaming the management and demanded to be made CEO as he could fix the problem and it was all some-else’s fault as the borrower and guarantor knew what they were getting into.

JB/Richmond Group then had a temper tantrum a couple of months back and said we are selling off our 60% over the next 60 days at whatever price we can get.

Then JB again demanded to be made CEO.

The company does have large, possibly existential, issues but the cause of these issues is now in the past.

Where I see the difference between Amigo and your selections is that Amigo's problems are all well understood whereas your selections are companies in the middle of massive problems which are yet to be fully defined.

Bye

Ian

[scrumpyjack]

I'm tempted to buy a small portfolio of out-of-favour stocks (10% of my portfolio). On my list of potential companies I've considered:

Whitbread
Carnival
International Consolidated Airlines
Rolls Royce
Lloyds

Most of my portfolio consists of Index ETF's but I like to have a punt now and again. As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger on these Corona damaged equities?

Cheers

IMO Whitbread is far less risky than the other 4. WTB has always been conservatively managed with no 'massaging' of profit figures. The budget hotels business has a good business model and will recover strongly when the bug is in the past.

Carnival's gas guzzling ships do not attract me.

Airlines - highly geared, pension fund problems, competition from cheap airlines etc etc

Rolls Royce - always been a very up and down business - down more than up

Lloyds - who knows what their bad debt position is going to be and the banks have been going downhill for many many years - PI's really have no idea of the risks

[ontheball]

As I believe we maybe reaching the point of maximum pessimism, is now a good time to pull the trigger on these Corona damaged equities?

I think it's the right approach to pull the trigger if stocks go on sale, but I'd only be aiming at quality businesses. By quality, I mean companies with an economic moat (competitive advantage), not heavily leveraged with debt and producing a lot of free cash flow.

I think debt will become a big factor with companies over the next year. Revenues will fluctuate, but debts aren't so flexible.

I'm still looking into them but Greggs look a potentially good investment, if their price drops a bit more.

p.s. I dont think we're at max pessimism yet, but definitely on the way...