2021 has seen record highs across the ASX, with some stand-out stocks beating the market. Going into 2022 which stocks are people watching very closely. Three Stocks to Watch in 2022.
FLT: Flight Centre
There’s no doubt about it, 2020 was a traumatic year for the entire travel sector as we saw share prices plummet across the board. Going into 2022 we are still seeing companies Flight Centre set to rebound.
Flight Centre is a flagship company in the travel sector. In the past months, we have all heard the hypothesis. COVID brought down the entire sector almost overnight, with the return of travel and the return of money to the sector, prices will go sky high, right? Does this stand true for Flight Centre?
Flight Centre’s Record Volumes
It’s evident that all investors are eyeing off FLT for trading opportunities as we have seen record trading volumes since the 2020 crash. Strong volumes are continuing into late 2021. As such it’s clear FLT is a stock to watch in 2022 for many investors.
The efficient market theory states that everything that can be known about a stock is already priced in, but we can see that FLT is still far-below pre-covid levels. It seems investors are still bearish despite signs of economic recovery across Australia and the easing of COVID restrictions as borders begin to reopen.
Flight Centre Set to Rebound off Easing Restrictions
There's no question that Government-mandated lockdowns and restrictions on international and domestic travel significantly weighed heavily on Flight Centre's revenues. FLT was able to respond quickly slashing expenses across the board. Right now FLT is still burning cash, with a PE of -2x.
Finishing 2021 and going into 2022 we have seen a quick 'V-Shaped' recovery by the Australian economy, and we are seeing the ASX push to all-time highs.
We can also see that lockdowns have left Australian's cashed-up with record saving rates and has boosted consumer spending, All of this has fuelled the massive spike and recovery to the Australian economy.
As Australia and the world become rapidly vaccinated we are seeing the easing of travel restrictions which could lead to the revenue recovery of FLT. Prior to the COVID crash, the travel sector was experiencing all-time highs and rapid growth
The Australian tourism industry reached a high point in 2019. Total spending by domestic tourists and international visitors was $152 billion. This represented a 10.3% increase on the previous year and marked the 10th successive year of expenditure growth.Source, TRA
Tourism Australia has graphed a number of possible forecasts for return of travel both domestically and internationally.
The Optimistic forecasts see the return of Pre-Covid levels to the industry by late 2022.
- Optimistic: October 2022
- Most likely: October 2023
- Pessimistic: February 2025
Judging by the strong saving rate and spending boasts across Australia we are expecting a strong recovery to the sector once restrictions are lifted. The evolving economic and political environment makes Flight Centre a stock to keep a close eye on in 2022. Here's our full Analysis on FLT for further reading into the COVID opportunity.
CBA: Commonwealth Bank
2021 has been an interesting run for CBA as we saw the companies profits return after they raked in a massive $8.6 Billion in profits in 2021. It's been no surprise that the companies share price crossed the $100 mark for the first time and has been setting all-time highs. Meanwhile, CBA's strong dividends and share-buy backs have seen billions returned to shareholders
Despite strong results, CBA's share price crashed in late November following the release of the September quarter results which saw a crunch in the group's NIM or Net Interest Margin
The Group’s net interest margin was considerably lower in the quarter.
CBA's Massive Market Share
We can see across the board CBA continues to maintain a strong market share in the Australian and New Zealand Banking sectors. This includes the largest ownership of Aussie Mortgages with a massive 26%.
Off the back of the COVID recession, increased savings among Australian households has surged the housing market and caused new leading to jump 49% over the last year.
CBA is set to benefit the most out of the big four banks as the Australian housing market continues to rise and businesses are set to eye off-growth fuelled by business lending.
CBA's Strong Fundamentals
CBA is the best-capitalized bank in the work in terms of CET capitalization and is set to benefit further from Australians economic recovery. Yet compared to the broader market and the remaining big-4 banks, CBA appears reasonably under-valued. And of course well capitalized to continue supporting strong franked dividends.
2022 Outlook for CBA
Although NIM remains low, interests may begin to return with increased inflation. Which would improve interest margins and interest income across the group.
CBA's mission to become a simpler better bank has helped keep costs down and leaves the bank well-capitalized to return money to investors and continue future expansion.
COVID-19 lockdown restrictions have been the death of many Australian businesses, but those that remain are seeing profits beginning to return, especially as borders begin to reopen. From this recovery, businesses will be seeking to grow and looking to the banks for loan support. Prophet's Full CBA Analysis.
In a year where we have seen retailers such as JB Hi-Fi, Harvey Norman, and Nick Scali show strong growth and recovery catalyzed by strong spending, KGN has been a different story. The online Aussie retailer has seen a boom-and-bust over 2021
The Kogan Share price has had a disappointing year. With the share price of the online retailer falling 45%.
Kogan Stock traded most of the year on a price to earnings of 800 times which is significant and is also above the average of the broader ASX market. The company would need to be growing at a significant rate in order to justify such a PE ratio.
For reference we can see the average PE across the ASX has spiked before returning to normal levels as profits returns. This simply isn't the case for KGN, which saw EPS slashed, and although the price fell, PE still remains over-inflated at around 257x.
Whilst it’s hard to put a finger on exactly what has gone wrong for KGN ASX over the past year if you scroll out a little the 5-year performance is still extremely impressive. In our opinion shares are simply taking a breather as they were likely overvalued based on price to sales and price to earnings.
Kogan's Big Bet on Inventory
At the back end of 2020, we saw Kogan purchase in our opinion what were high levels of inventory. Kogan reported inventory value on their H1 FY21 balance sheet of 225million, the group continues to carry ~227million of inventory on their balance sheet as of FY21. This potentially suggests that Kogan is not being able to move stock as fast as initially anticipated.
It will be interesting to see play out and see if these convert into sales. Historically if retailers cannot sell stock at expected rates, they end up having to discount stock and pay additional costs in warehousing the inventories.
Shipping Cost Surges
Another lesser-known impact off the back of COVID has been the rapidly increasing inflation across shipping and logistics. Many of us may have noticed exorbitant pricing and delays from online products coming into 2021.
With COVID lockdowns in full swing, the number of international flights and travel plunged, and with it the supply chain networks for many imported goods. In a bit of a dominos effect, the COVID recession saw freighting and logistics following after every other business, cutting costs where possible and laying off staff.
With most of the world is locked down with record levels of household savings, e-commerce hit record highs as people began ordering online in record numbers. This put more of a strain on already struggling supply chains. And with basic supply and demands, the price of importing has surged and delays have increased.
We can see from this chart that electronic equipment is set to surge the most with freighting costs predicted to increase 11.4%. With Kogan already having a large inventory of electronics, this may place them in an excellent opportunity to undercut other retailers possibly passing on cost-savings. Kogan Analysis: Should I Buy Kogan Shares?
Three Stocks to Watch In 2022: Prophet's Take
There's no question that COVID has caused massive turbulence across financial markets worldwide. The travel sector has seen massive volumes in trading as investors try and capitalize on the return of revenues and swing-trading opportunities. Across the board, Travel stocks are still down despite the overall market setting record highs. With the world becoming rapidly vaccinated 2022 may be the year we see profits return for investors.
Following on from the reduction in international travel we have seen a price squeeze on freighting and logistics leading to impending inflation, particularly on consumer electronics. Kogan has been a highly traded stock that took a massive bet on increasing inventories. We will be watching closely if the group is able to move stock. Particularly with stock inventories positioning them well to undercut competitors.
Finally, the overall economic downfall has seen massive impairment costs from banks and insurers. Shrinking NIMs have squeezed the bank's bottom lines, yet CBA has achieved excellent profits and remains well-capitalized. With increasing inflation, the bank's margins may finally return and boost profits further.
Let us know in the comments below what stocks you are watching closely in 2022.