Top 3 three stock market picks

This is a strange week in financial markets. The recovery in risky assets is in full swing, yet we are watching earnings season unfold and the negative economic news keeps on coming. Although there are signs that economies in Europe, Asia and in some US states are loosening their lockdowns, the threat of coronavirus is still looming large. This can make it hard for traders to make decisions, are you constantly doubting your own judgement, changing your mind and wishing that you had the clarity and steadfastness of a Bobby Axelrod? Here at Minerva, we believe that you can enhance your decision making by focussing on just a few companies at a time and being very clear on why you are trading them. Below, we offer three actionable trade ideas for Barclays, BP and EasyJet. 

Barclays:

It reported Q1 results on Wednesday, which made for some grim reading. A £600mn decline in profit, it also set aside £2.1bn to cover its initial estimates of bad loans due to the coronavirus pandemic, however this figure could be almost double that once the true scale of the economic damage is known. However, while its retail business in the UK could see an 8% decline this year, thank god for its investment banking division. During the Coviod-19 market turmoil, Barclay’s investment bank saw profits jump 30%. Luckily top brass at Barclays have kept faith in the investment bank, even though some investors have asked for the bank to sell its IB! 

Overall, return on investment is a decent 5.1%, largely because of its diversified business model, i.e., its investment bank alongside its retail bank. The FCA has stopped banks from paying dividends, which is why Barclays’ dividend yield looks paltry at 2.71%, however, with the investment bank helping to keep Barclays afloat during these challenging times, we believe that Barclays could be one of the  first banks to start repaying dividends once the FCA restriction is lifted. While it will likely remain challenging times for the retail banking sector for some time, we believe that Barclays is better placed than some rivals to weather the storm. Its share price has only recovered a quarter of the Feb – March decline, and its P/E ratio is also looking attractive at 6.84, which makes it an attractive proposition for those looking for bargains. 

BP: 

The outlook is obviously dreadful due to the precipitous decline in the oil price. The company announced a $628 mn loss in Q1, with more to come later this year. While the oil company’s shipping business may be doing well, this won’t be enough to cover the losses linked to the sharp decline in the price of oil. The uncertainty caused by the pandemic makes the future look deeply troubled for BP, we expect a large cut to the cost base and also large job losses. The lack of clarity on the oil price makes it hard for BP to make decisions on future projects, thus we expect cash preservation in favour of capital expenditure. However, cash preservation is not the order of the day when it comes to the dividend. BP has promised to pay its £1.7bn dividend even when many other global behemoths are cancelling their dividend payouts. This pledge by BP makes it dividend yield look stellar, nearly 10%. Of course, if things continue to deteriorate in the oil market then there is a risk that future quarterly dividends will be cancelled, however, we believe that if BP can pay out in Q1 then it should be able to maintain its dividend in future quarters, particularly if it acts quickly to cut costs. 

BP’s share price has risen some 40% from the low, we would expect it to increase further if the oil price continues to rise. This is a risky bet – its share price will fall further if there is a second wave of lockdown. But if you believe that the world’s major economies will soon open up at the same time as keeping coronavirus at bay, then this could be the stock for you. 

EasyJet: 

The reasons to dislike an airline until there is a vaccine available to eradicate Covid-19 are obvious and we won’t go into them here. However, EasyJet is a fairly simple airline – it’s not a conglomerate like IAG, and its mostly European flight base could open up sooner if European countries continue to emerge from lockdown. 

While we expect travel and tourism to be one of the last sectors to recover from this crisis, signs that lockdowns are ending will trickle down to stocks within this sector. On that basis, EasyJet looks well placed to do well. Its share price has recovered less than 20% since the big decline back in February, thus it has plenty of upside to go, it paid this year’s dividend, and its dividend yield looks decent at nearly 7%; if the share price falls any further then this yield will move even higher. Also, its P/E ratio at 6.45 could also tempt bargain seekers not afraid of a risky trade. This is not a stock for the risk averse but could pay off if you hold it for the longer term.