Pessimism has never been more rife than in share markets right now.
High inflation, surging fuel prices, rising interest rates, a war in Ukraine and the threat of recession are all conspiring to make investors pretty anxious.
“Investors will have to navigate a period where economic and earnings growth could be vulnerable to downward revisions,” Wilsons head of investment strategy David Cassidy said in a memo to clients.
“We have already seen a downward revision in the S&P/ASX 300 (ASX: XKO) in June, and we think this will continue as we get closer to reporting season in August.”
In this type of macroeconomic climate, you might want to “turn down the noise” for a bit.
If you put the economy aside, one thing you may have noticed is that airports in Australia and the US have been jam-packed.
In fact, both the April and current school holidays have seen such long, chaotic queues at Sydney Airport that travellers are actually missing their flights.
When a particular industry is enjoying such pent-up demand, surely it has to be worth a look.
Qantas shares are dirt cheap compared to a month ago
Despite the massive thirst for travel, the fear of a recession has really pulled back the share price for Qantas Airways Limited (ASX: QAN).
This ASX airline share has lost more than 18% over the past month.
Cassidy reckons this presents “good value” to buy right now.
“Despite Qantas being a high beta stock, we believe near-term demand will be bolstered by pent-up leisure and corporate demand and outweigh the impacts of an economic slowdown,” he said.
“We think Qantas will be more resilient to a decline in economic conditions with its leaner cost base, stronger balance sheet, and higher loyalty contribution than in previous cycles.”
Besides, Cassidy personally thinks the market is now overestimating the risk of an economic downturn.
“Our view is that the outlook is not as bleak as what the market has priced in,” he said.
“As a result, we believe that in the broadening market sell-off, investors now have a good opportunity to buy quality stocks that are well priced.”
With the travel industry surging, the Wilsons team reckons the airline’s price-to-earnings (P/E) ratio based on the 2024 financial year could rise to 10. It currently trades at 6.
That’s a 67% upside.
“If Qantas can achieve consensus earnings of $0.68 per share in FY24 (which we think it can) then the stock should be priced at the end of June 2023 at $6.80 using a 12-month forward PE multiple of 10,” he said.
“As the market gets more focused on the FY24 earnings over the next 12 months we think the stock can rerate towards this price target.”
Qantas shares closed Friday down 0.22% at $4.44.
