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Article first published on Finder 11 October 2021

Pubs, airports and travel agents set to soar, but should you take the short-term win?

After more than 3 months of lockdown, New South Wales’ freedom day is here, which is likely to see sectors that have struggled during the pandemic become the major winners.

And those that have benefited from spikes in growth during the pandemic are likely to see dips as the consumers emerge from lockdown.

Services sector set to boom

Some of companies that took a battering over the last 18 months are set to be the biggest winners post lockdown as services resume at 12.01am Monday 11 October.

According to Tribeca’s portfolio manager Jun Bei Liu these services-orientated businesses are likely to experience significant pick-up in demand as the state re-opens.

“These are the companies whose earnings have been significantly impacted by the COVID related lockdowns, companies such as Star Entertainment Group, Qantas, Sydney Airport, Ramsay healthcare and travel agents such as Flight Centre and Webjet,” she told Finder.

Adding to the list of potential reopening winners was Bell Direct’s senior market analyst Jessica Amir, who also points to the travel, tourism and hospitality sector as the major winner from New South Wales opening up.

Aside from the names mentioned by Bei Lui, Amir said “Helloworld (ASX:HLO), Rex (REX) and Corporate Travel management (ASX:CTD). Even those across the ditch such as Air New Zealand (ASX:AIZ) and Auckland Airport (ASX:AIA) could do well.”

She also pointed out that Australia’s biggest pub owner Charter Hall (CLW) is an example of a stock to watch as patrons return to their local taverns post lockdown.

Have the markets already factored in reopening?

Despite some of the growth already added into these sectors in anticipation for reopening, Amir points out that these shares might still see stronger earnings moving forward.

“Remember earnings growth drives share price growth. So this means industrials (travel stocks) could see the most share price growth in 2022,” she said.

The senior analyst is predicting that the sector could grow by as much as 15.5% in FY23, meaning some of these stocks will be undervalued.

“So you could consider boosting exposure to companies with strong balance sheets or those who heavily cut costs during the pandemic, such as Qantas (ASX:QAN) and Flight Centre (ASX:FLT),” Amir said.

However, Bei Lui explains in certain circumstances, including travel agents which are well above pre pandemic levels, that some stocks could have already priced in a surge in travel.

“Most of the travel agents’ share prices have now already been above the pre-COVID levels, when their earnings are yet to return to normal levels,” she said.

“This suggests that investors are now looking through their current level of earnings and assuming a return to normalisation quickly. Now we all know our journey to frictionless international travel will take time, hence these companies have much of the good news priced in their share price already.

“Not to mention many of those companies had equity raising during the past 12 months and have cut their cost base significantly,” Bei Lui told investors.

Stocks likely to fall from the pandemic

Some of the main winners during the pandemic could in fact lose post lockdowns.

According to Amir, the sectors that showed the strongest growth during the pandemic, including cloud based software companies could see a dip post reopening.

Ms Bei Lui agrees.

“On the other hand, companies that have benefited from the COVID related lockdowns will see earnings dip for the initial stage of the reopening,” she told Finder.

“Businesses including ecommerce platforms Kogan and Redbubble, retailers that were allowed to open during the lockdown such as Bunnings or the supermarkets (Coles and Woolworths).”

Is it time to change tactics?

Even though certain stocks over the short-term could see an increase in price, Bei Lui noted that investors shouldn’t change tactics.

“We don’t believe so, investing is about finding quality companies whose share price is mispriced by the market. Be patient, eventually share prices will follow earnings growth,” she said.

Amir explains to Finder that professional investors are looking to move following the change in cycle with retail investors potentially following.

“Many long term investors will stay the course and not change the stocks they own, however may buy the dip into airlines and travel stocks – remembering that the Aussie market is trading around record high territory,” Amir said

“And if you are looking for long term investment opportunities and want to grow your wealth over time and are looking for stocks that are undervalued now, there are some great buying opportunities,” she concluded.