The recent stock market crash may have happened many months ago, but investor sentiment remains weak across the market. It’s no surprise why investors are continuing to steer clear from some companies. The coronavirus crisis is rumbling on, and the global economy is facing the prospect of an extended slowdown.
UK investors need to remain cautious in this environment. However, some companies on the market could have the potential to double investors’ money from current levels.
Therefore, it may be worth buying a diversified portfolio of these stock market crash bargains to profit from the economic recovery.
Stock market crash bargains
The coronavirus crisis has particularly severely impacted theatre and cinema owners like Cineworld (LSE: CINE). In the March stock market crash, shares in the company plunged to an all-time low of around 21p.
As the company was forced to close its outlets, revenue vanished, leaving the business with a massive pile of debt and no income. This has left a cloud over the group in the near term.
Nevertheless, as one of the world’s largest cinema groups, Cineworld may be well-positioned to stage a recovery over the next few months and years. The company has been able to renegotiate lending terms with its creditors and management has also pulled out of a massive deal to acquire Canadian organisation Cineplex. That should help stabilise the balance sheet and allow management to focus on rebuilding the business.
As the company re-opens, there could potentially be substantial returns on the cards for shareholders from the stock market crash casualty.
Last year the group earned £138m of net profit, or around 10p per share. If earnings return to this level, shares in Cineworld are currently dealing at a P/E of just 4. Historically, the stock has traded at a historical P/E of around 13. That suggests the shares have the potential (for risk-tolerant investors) to jump more than 300% over the next few years as the business re-opens.
WH Smith (LSE: SMWH) has also faced a harsh operating environment over the past few months. This was reflected in the company’s price action in the stock market crash. Shares in the retailer plunged by more than 60% in March.
To cope with the crisis, the firm is planning to slash costs, which should help reduce spending while revenues remain depressed. It could take several years for the group’s recovery to take shape.
Analysts don’t expect airline and passenger numbers to return to 2019 levels until 2023. As WH Smith generates most of its sales from concessions in rail and airport transport hubs, this could be a significant headwind.
Nonetheless, the group’s position in the market is its most considerable advantage, and this isn’t going to go away anytime soon.
Therefore, this stock market crash bargain may have big potential over the next few years. If profits recover to 2019 levels by 2023, the stock may double from current levels.
That’s assuming the company avoids further bolt-on acquisitions, which seems unlikely considering its track record. Additional deals may only speed up the recovery.
Rupert Hargreaves has no position in any of the shares mentioned. 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.