Buying travel shares such as Qantas Airways Limited (ASX: QAN) while the outlook for the pandemic remains unclear?
While that may sound like a higher risk investment than sticking with market darlings such as buy now, pay later (BNPL) powerhouse Afterpay Ltd (ASX: APT), Vince Pezzullo, deputy head of equities at Perpetual Investments, explains why Perpetual bought – and continues to hold – Qantas shares.
The case for Qantas
Following the COVID-fuelled market rout last year, the majority of S&P/ASX 200 Index (ASX: XJO) shares rebounded strongly from the 2020 March lows.
If you had spare cash and managed to capitalise on the rebound, good on you.
But Pezzullo explains why it's important for investors to look beyond this cyclical rebound (quoted by the Australian Financial Review):
You need to be focusing on the businesses where it's not just about the cyclical recovery. Look for the second leg, which is, 'how has management taken advantage of a pretty quick and material slowdown to rationalise the business?' Qantas is one of them, they've basically realigned the entire business very quickly.
That realignment came along with Qantas' $1.4 billion capital raising last year. And, according to Pezzullo, that raising made the stock a more attractive investment. "That's one of the stocks we haven't owned for a long time. We were a bit nervous about the balance sheet [but] once they did the raising that for us was a good enough reason."
With massive government stimulus packages around the world supported by rock bottom interest rates and central bank quantitative easing (QE) programs, today's investment climate is a different place than it was last year. The world now also has multiple coronavirus vaccines to potentially stamp out the pandemic. Which are just some of the reasons Pezzullo says your investment approach needs to evolve as well:
You really have to be on your toes now, so to speak, to ensure that you can take advantage of what may occur due to some of the actions in the last 12 months. That's quite an open statement, but that's what I'm suggesting: that doing the same thing as last year will not work for the next 18 months to two years.
Qantas share price snapshot
The Qantas share price, up 0.4% in intraday trading today, is down 2.7% so far in 2021.
Shares remain down 25.5% from 12 months ago, though the share price has soared 123.8% since the 19 March low.
Qantas pays an annual dividend yield of 2.8%, fully franked.
