Virgin Australia’s woes, Virgin galactic readies for take-off … while Tesla was the best performer of Q2

By Jonathan Jackson. Published at Jul 3, 2020, in Features

It has been a tumultuous time for Virgin Australia staff and shareholders.

Prior to the sale of Virgin Australia to Bain Capital, bond holders sent an eleventh-hour proposal to administrators to stop the sale of the airline, instead suggesting recapitalising the company on the stock market. The proposal would have seen bond holders become shareholders, resulting in approximately $1 billion of new funds. Virgin Australia would have re-listed with reports suggesting the new market value would be $1.4 billion.

Of course, none of that happened and the airline was sold to Bain Capital (final details are being negotiated), which has been thrown straight into the fire after major aviation leasing group Wells Fargo Trustees and Florida-based aviation leasing company Willis Lease Finance Corporation launched court action to repossess jet engines and other parts it had supplied to the airline prior to its collapse.

We will see how all of these plays out over the coming months, but you still can’t buy shares in Virgin Australia.

The Virgin brand, however, seems unaffected – at least when it comes to space flight.

Vertically integrated aerospace company Virgin Galactic Holdings, Inc. (NYSE: SPCE), this week announced that SpaceShipTwo’s cabin interior design reveal will take place on 28 July, 2020.

The virtual event will be streamed live on YouTube. In celebration of this milestone, the Company will also be announcing plans to bring immersive experiences of Virgin Galactic’s spaceflight and cabin interior to aspiring astronauts around the world.

As a part of Virgin Galactic’s mission to democratise space, and in response to current restrictions on travel and live gatherings, the company has developed and will be releasing new, cutting edge digital platforms. These will provide users with an opportunity for detailed and immersive exploration of the cabin interior and other elements of the Virgin

Galactic spaceflight experience from the comfort and security of their homes.

George Whitesides, CEO of Virgin Galactic, said: “One of the defining hallmarks of the Virgin brand has been experience-enhancing, pioneering design. Virgin Galactic has striven to remain faithful to that tradition by developing elegant, experience-focused vehicles for the space launch system, and choosing landmark architecture for our operational headquarters at Spaceport America, New Mexico. We now look forward to revealing our spaceship cabin design, which is progressive, beautiful and functional. We are particularly delighted that, under current restrictions, we have been able to create an experience that we will be able to share with the millions of people around the world who dream of travelling to space.”

Market rebounds in Q2, but Q3 will have its challenges

There was a market correction in March. That seems like a lifetime ago under lockdown. However, following this correction, Q2 2020 saw a rebound that propelled the market back into the pre-COVID-19 territory with the S&P500 sealing its best performing quarter since 1998.

“Q2 2020 was surely the “rebirth” of economies on a new platform of state capitalism, funded by very supportive monetary policies melting fiscal and monetary institutions closer to each other in the name of crisis management. All-out stimulus to fight the biggest economic contraction since the 1930s has fostered animal spirits and speculation on a scale we have not seen since 2000, maybe even since the roaring 1920s,” Peter Garnry, Head of Equity Strategy at Saxo Bank said.

“Even though we have seen a massive comeback on the stock market, we are not out of the woods yet. As we enter Q3, markets remain fragile. The VIX is indicating a very volatile summer, where Q2 earnings releases will finally reveal the real damage to the corporate sector and potentially give us a rough sketch of what is ahead.”

Saxo Bank’s most traded stocks in Q2 (% return in Q2) :

Tesla (+124 %)

Boeing (+40 %)

Danske Bank (+19 %)

Apple (+51 %)

Microsoft (+34%.)

Here is Ganry’s take on the top five stocks:

Tesla
Tesla stole the headlines once again with an exceptional comeback in Q2 leaving the stock above 1000$/share. Even though Elon Musk called the stock overvalued on Twitter back in May, investors seem to think otherwise. It will be interesting to follow the Q2 earnings, as this will give a more precise indication of how Tesla handled the COVID-19 pandemic.

Boeing
After a terrible start of 2020, the airline manufacturers have been flying high as markets have rebounded in Q2. COVID-19 has taken a big toll, as the pandemic reduced the airline passenger traffic substantially and thus delayed purchases for new jets. More countries reopening could give some much-needed light at the end of the tunnel, but it is still unsure how long it will take before passengers and airports return to the pre-COVID-19 normal.

Danske Bank
The largest Danish lender has initiated a long steep climb towards regaining the loyalty of both clients and regulators following the money laundering scandal. CEO Chris Vogelzang is currently restructuring the organisation, but the jury is still out on whether this will have any material results as the sector continue to struggle low interest rates and a likely fallout from the COVID-19 pandemic.

Apple
COVID-19 left Apple groggy in the beginning of 2020, as most production was tied up in the China lockdown. After the country reopened and the initial scare in March was over, investors started piling into the smartphone giant – catapulting it to reach its all-time high on 23 June.

Microsoft
Since Satya Nadella took the Microsoft reins back in 2014, he has pushed it towards an online future with a heavy focus on cloud computing. This seems to have been the right choice, as Microsoft’s online solutions especially within digital communications and workplace technology prospered during the COVID-19 lockdowns.

Top stocks based on regions/countries:

APAC:

  1. Tesla
  2. Boeing
  3. Moderna
  4. Zoom Video Communication
  5. Facebook

Australia:

  1. Afterpay Ltd
  2. Qantas Airways Ltd
  3. Microsoft
  4. Apple
  5. BHP Group Ltd

The Tesla bandwagon

eToro analyst Josh Gilbert is also on the Tesla bandwagon.

“Tesla has seen a huge rise in share price since its lows in March and has been one of the most frequently invested stocks via the eToro platform throughout 2020,” Gilbert says.

“Tesla’s share price was up more than 22 per cent in June as it went on to breach $1,000, smashing its record high. Tesla has rapidly become a household name within the last 12 months. The electric vehicle giant is the world’s most valuable carmaker and can put its recent success down to improved sales in China. A new stock sale before the pandemic allowed Tesla to raise over $2 billion in cash, which was a key move in hindsight as most of its warehouses worldwide were closed during the fallout of the pandemic. A recent email leaked from Tesla CEO Elon Musk saw the share price surge more than 8 per cent in June, as Musk showed optimism the company could break even in the second quarter.”

NASDAQ’s record highs

Q2 saw the NASDAQ reach record highs. This was led by US tech stocks continuing to drive the recovery of global markets.

It’s no surprise this is the case as consumers and businesses adopt a global tech strategy to help them live, work, play and communicate.

Apple reached all-time price highs of $355.37 in June. It went on to end June at $364 a share, a jump of over 12 per cent for the month.

According to Gilbert, “many Wall Street analysts adjusted their price targets in June for Apple, with some anticipating it could hit $400 a share. Apple has enjoyed recent success from its Apple Watch and Airpods line-up, reaching $6.3 billion in sales in Q2. The highly anticipated 5G revolution is also sparking interest around Apple, who is set to launch a 5G-enabled iPhone. Apple also recently announced cash reserves of around $192.8 billion, boosting investor confidence.”

Best and worst performing sectors

The market was more consistent this week than it has been recently. Information Technology was the best sector up over 6 percent (at time of writing). Consumer Discretionary and Communication Services were up over 3 percent with Consumer Staples not far behind. Healthcare and Utilities, were the worst performers, however both were (just) in the green. Industrials was up over 1 percent.

Of the ASX top 100 stocks, Evolution Mining (ASX: EVN) was up 12 percent, and Star Entertainment Group (ASX: SGR) and Northern Star Resources (ASX: NST), were up over 8 percent. Suncorp Group was down over 6 percent (ASX: SUN), followed by Janu-Henderson Group (ASX: JHG) and Orora Limited (ASX: ORA), were down over three percent.

So what's next for the Australian share market?

According to Wealth Within's Dale Gillham, "While the market traded lower on Monday than it did the week before, it has traded up for the rest of this week to trade higher than last week. In doing so, it has increased the chances that the recent down move on the market may be coming to an end.

"There has been a tug of war over the past month between the bulls and bears with no side really dominating and, as such, the market has lacked a clear direction. While it is still too early to tell if the bulls are taking back control, we need to see the market trade above the high of 6,314 points set on 9 June to confirm this and that the market is bullish.

"We need to remember that the US market is closed on Friday for 4th of July celebrations, so I expect our market will be a little subdued until next Tuesday when we see how the Dow Jones has traded after the long weekend. Given this, I recommend staying patient until the high of 6,314 points is broken, as there is still a probability the market could turn to fall away."

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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