A veteran fund manager has identified one sector that COVID-19 almost sent broke as a rare buying opportunity.
Wilson Asset Management lead portfolio manager Oscar Oberg said that his company is currently holding Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) shares.
"Given the second wave we've seen in Melbourne and continued cases in Sydney, you'd probably think I'm a bit mad for looking at the travel sector," he said on an investor call.
"What we're seeing in the travel sector is all-time very, very low valuations."
Oberg said that conditions for travel companies could dramatically improve when state borders open up, which could be as soon as this Christmas.
"If you go back prior to COVID, Australians spent just over $60 billion on international tourism last year. This compares to about $50 billion on domestic tourism," he said.
"When the borders open up, we think a big portion of this spend on international tourism will flow onto domestic tourism."
Travel companies have "much stronger balance sheets than what the market gives them credit for", according to Oberg, and are ready to pounce.
"We think they're well-positioned to benefit from domestic tourism once [state] borders reopen."
Ready to pounce with solid balance sheets
Wilson Asset Management felt Webjet and Corporate Travel were especially underrated.
"The expectations for these stocks were very low going into their results [last month]. The market said they were going to downgrade earnings and they have balance sheet issues," he said.
"We were comfortable around their liquidity. We also spoke to a number of companies overseas and… there were signs of life with tourism, particularly in Europe, and the corporate travel market."
Oberg admitted it could be a long recovery for the travel sector.
"We're getting a sniff that a vaccine could be around the corner. And this is certainly one industry that would really benefit."
Regarding the other big travel player Flight Centre Travel Group Ltd (ASX: FLT), Oberg said while Wilson did not hold its shares, the outlook was similar.
"It was all my fault. I sold the business too early, at $10.50," he said.
"We've seen the share price rebound with the results [last month]."
Surprisingly, business travel has recovered fastest among all the travel sub-sectors. And Flight Centre, according to Oberg, has substantial activity in that area.
"If you look at travel stocks, there's a lot to occur over the next 1 to 2 years. But you've got to take a long-term view," Oberg said.
