Recent weakness in share prices, does this present BUY opportunity?
Weakness in share price, does this present BUY opportunity for Flight Centre travel group Ltd, Breville Group Ltd, Audinate (AD8), Reece? Thanks
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Answer
Hi Kim,
This is four questions here so please excuse the brevity towards each stock:
- Flight Centre Travel Group Ltd (FLT): We discussed FLT earlier in the week, we are neutral around $13 but it is slowly starting to present value.
- Breville Group Ltd (BRG): We like BRG as a business but taking into account the risks around tariffs, with BRG manufacturing most of its appliances in China, we believe it’s fair value ~$28.50.
- Audinate (AD8): Audio/visual operative AD8 delivered a good result in February but the stock has fallen away since and we’re inclined to remain neutral, even after its dramatic fall from grace. There will be a time to buy this one, but not yet.
- Reece (REH): This plumbing business has struggled for more than six months due to the housing downturn in Australia and the US weighed on performance. They were trading on a high multiple for the type of business they are. However , valuation has come back significantly, and with rate cuts on the horizon, if we don’t experience a global recession, our preferred scenario, we think REH is finally presenting value ~$16.
We wrote several times into the recent correction that buying when volatility is high is generally a very good strategy, the probability of positive returns in the coming year is exceptional. Specifically, we quoted the following on 8th April:
The VIX, spiked on Friday to its highest level since the COVID-19 outbreak. Some important stats worth highlighting when volatility spikes as it has:
- Since 1990, there have only been 106 days where the Volatility Index (VIX) has been above 45.3 or greater, like it is now.
- On 105 of those occasions, buying the S&P 500 would have made money on a 12-month basis. The worst outcome was -2%
- Historically, the odds of a positive one year forward return when the VIX is at this level are 99.1%
- Outside of the GFC (the collapse of the financial system) and COVID (the collapse of humanity), this is it, Peak fear!
Additionally, when markets experience sharp corrections for macro reasons, we generally like to buy stocks that were rallying into the turn, not stocks/companies that were already under pressure.
