The global stock market indices continue to rally, with a handful of companies contributing to the positive performance since the march lows.
And while the anecdote says, “a rising tide lifts all boats”, this isn't the case. Many sectors in the market are just bobbing up and down and not moving decidedly higher. These overlooked companies offer value, still 20% or more below their pre Covid-19 prices. And a return to profitability for two of them could lead to outsized gains.
We believe there are three shares you shouldn't ignore, as the seas calm post the Covid-19 storm.
A 158 year heritage – this transport stalwart knows how to drive profits up!
Why are insiders buying up this transport company’s shares?
1. EOH – Calm seas ahead
The turnaround at EOH is gaining momentum. They are ahead of various deleveraging, cost cutting and non-core business disposal timelines. EOH should start showing this in its next set of results due in October for its July financial year end.
As it knows with more certainty what its financial results will be, it will issue an operational update and trading statement in the coming weeks. This open communication is one of Stephen van Coller’s (CEO) greatest promises. And he has kept shareholders informed ever step of the way through the turn-around implementation.
The Covid-19 pandemic has been a blessing in disguise for EOH as its looked at internal products that could help their customers cope with the challenges of staff working remotely.
In its half year to 31 Jan, it had revenue over R4.5 billion with gross profit above R1 billion. A net loss was made but that should change in the next set of results.
A return to profitability for a business EOHs size will result in a rally above R10 quickly.
Buy EOH below R5.50
2. Distell – smooth Sailing to higher share prices
We tipped Distell (the owner of Three Ships Whisky) back in May and it had a swift rally to R90 from our tip price of R76. Our target price is R100 by year end. Demand remains robust and the share is carving out a strong support level at R75.
When we tipped Distell, here is what we said, “Management have implemented significant measures to ensure the balance sheet remains strong with extensions of funding facilities and incentives for early payments from customers. They will be offloading two premium wine farms to unlock value and bolster the balance sheet”.
Buy Distell below R77.50, for a move to R100 over the next six months.
3. Blue Label Telecoms – successful in righting the ship
Blue released a trading statement yesterday that indicates the worst is over for the once stock market darling. It had a meteoric rise, and fall from, above R20. It geared itself too much to rescue Cell-C from collapse. This has been one of the biggest drags on the company.
Yesterday’s trading statement indicated earnings will improve by more than 20% from a massive basic loss per share over R7. The Group has generated positive cashflows for the year ended 31 May and all impairments and right offs should be done. What will emerge is a leaner, focused business with a stronger balance sheet.
This could be the last time the share is below R3. The turn-around will not be swift, but the rewards for patient investors will be handsome.
Buy Blue Label below R3 today.
See you next week.
Contributing Editor, Money Morning