This will be the best chance to get hold of the best names in small and mid-cap stocks, but investors should still be wary of junk stocks, according to Bell Asset Management.
Ned Bell, chief investment officer at Bell Asset Management, said what was currently happening was unprecedented.
“There’s no playbook for what’s happening right now because unlike the global financial crisis this is not index or industry specific, this is widespread,” Bell said.
“But the best small & mid-cap names are now on sale and this is a once in a 10-year opportunity to get a hold into the best names at dislocated prices.”
He warned about picking any stocks that appeared to have more valuable prices as not all would make the rebound.
“Those junk-type companies and those highly-leveraged business with skinny margins are the ones that are really going to feel the pain a lot more,” Bell said.
“A lot of the temptation for investors is that those ‘value stocks’ have been beaten up so much they’re looking attractive, the reality is a lot of those companies are going to bankrupt.
“If they don’t, they’re going to take a significant earnings hit which makes it very hard to make sensible valuation arguments.”
The corporate outlook had changed dramatically for a lot of companies such as those in the travel and hospitality industry, which may mean they were completely up-ended in the future.
“You only need to look at the hospitality industry, the airline industry which is in the process of being bailed out by the US government, and cruise line and hotel companies which are all in deep trouble.
However, Bell noted that there were sectors that had held up better, particularly consumer staples and healthcare.
Although investors last year felt growth stocks were too expensive, this had been a value-led drawdown which Bell said surprised a lot of people.
“Energy stocks down 53%, financials down 38%... basically what that’s telling is the earnings cliff we’re now staring at is what’s driving markets and from a factor perspective the only thing that matters right is balance sheet strength,” Bell said.