With the share market in such turmoil, it’s hard to know which stocks to buy right now, even though prices are so low.
You might be rightly concerned about buying into a company that will face further headwinds from rising interest rates or commodity prices.
L1 Capital head James Hawkins, however, had a hot tip for investors this week.
He thinks Qantas Airways Limited (ASX: QAN) is very much an “interesting stock” at the moment.
And that’s not just because of the obvious resurgence in travel since COVID-19 restrictions were lifted.
Qantas will take off using these tailwinds
In an industry notorious for slashing prices at all costs to win market share, Qantas’ biggest rival is hamstrung.
“Its major competitor… is now owned by private equity,” Hawkins told the On The Couch podcast.
“In my view, Bain [Capital], that owns Virgin [Australia], will be rational in their pricing.”
Moreover, Qantas has been much smarter than its international competitors in that it had the foresight to hedge its fuel costs.
Crude oil prices have soared in the past six months, sending the cost of aviation fuel to the roof.
“Qantas has hedged out its pricing for 90% of its fuel needs for the first half of calendar 2022, and it’s hedged 50% [for] first quarter FY23, and 30% second quarter, FY23,” said Hawkins.
“If you look at the US airlines, they’re unhedged to oil, and they also are very leveraged post-COVID.”
‘Not wasting a crisis’
Although the height of the coronavirus pandemic was a special kind of hell for aviation businesses, Qantas took full advantage of the break in day-to-day operations.
The result is, according to Hawkins, that the airline is “a very different company” to what it was pre-COVID.
“It’s really lived the adage of ‘never waste a crisis’ through taking out nearly $1 billion of costs over the last couple of years,” he said.
“I think the management teams are very capable there. So I think they’ve done a good job of not wasting a crisis, as well as realising some land values at Mascot and the like.”
Australians are climbing over each other to travel
The accumulated demand from two years of travel restrictions has the industry primed for a big year.
“There’s a habit once you’re on your first holiday to think, ‘Geez, that’s the first holiday I’ve been on in three years. And that was fun. I’m going to book another one and another one.'”
The coronavirus no longer seems to put off travellers from seeing the world.
“If I can get COVID here in Australia, why would I not get COVID in in a different state?” said Hawkins.
“We’ve seen that in the US, leisure [traffic] is close to 100% of pre-pandemic levels.”
Qantas shares have gained 5.7% so far this year.
Hawkins is far from the only professional bullish on the airline’s stocks. According to CMC Markets, nine out of 13 analysts rate the ASX share as a strong buy.
