During March 2020, stock markets worldwide began to crash. The crash was because of the expected effect Covid-19 would have on world economies. Since then, stock markets globally have ricocheted, and this is true for even the London Stock Exchange.
However, not all companies on the London Stock Exchange have boomeranged back. I think I have found three companies with solid fundamentals that are cheap right now and have the potential to reach new highs.
Reach for the sky
All eyes on easyJet (LSE: EZY), the low-cost airliner that operates within Europe. I know what you are thinking, “who in their right mind would buy airline stocks during Covid-19?” and you would be right. At the moment, all non-essential travel is to be circumvented. But EZY’s operational model and its balance sheet is a recipe for success.
The low-cost model adopted by EZY gives the company flexibility compared to the competition. This allows EZY to adapt to a low volume environment a lot faster. Total assets outweigh total liabilities by a factor of 1.3, and operating income easily covers the debt repayments. Currently on the London Stock Exchange, easyJet is trading just above the March lows. But I think the company could see some remarkable growth when flying becomes the norm again.
AAL is one of my favourite companies on the London Stock Exchange. With a high, predictable dividend yield of 4.6%, a balance sheet made of steel (see what I did there?) and is currently fairly priced, what’s not to love? Over the past three years, AAL has consistently reduced its debt to equity ratio to just above 30%. Having as little debt as possible during the Covid-19 pandemic will help the company ride out this wave of uncertainty. I think AAL would make a great addition to any portfolio.
The black sheep
I enjoy scanning through the London Stock Exchange looking for a company that is not receiving the love it may deserve, and I found one! Arrow Global Group (LSE: ARW).
ARW is a diversified financial sector firm that specialises in the debt acquisition space. It will identify, acquire and manage the debt on behalf of financial institutions like banks. At first, this may not sound like a good thing, being that a lot of debts are going to “go bad” in the coming months. But I think the pandemic will open up a whole range of high yield debt for ARW to source profits.
ARW’s share price is 72% down from its March value and for a good reason. But it has a few hidden tricks. ARW has high Return On Equity (ROE) of 28%, a resilient balance sheet with long-term debt (which is only repayable in 2024), and a sustainable dividend yield of 11%. I believe ARW could rebound in a big way once it starts to exceed the market’s expectations and get some much-needed love.
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Miles Williams owns shares in Anglo American. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.