The Cineworld (LSE: CINE) share price is down around 50% since the end of 2019. Following this performance, some value investors have highlighted the stock as looking cheap. However, I think this is a mistake.
The stock looks cheap, but only compared to its past performance, and past performance should never be used to guide future potential. As such, I’d avoid the Cineworld share price. I think there are plenty of blue-chip stocks in the FTSE 100 that could yield better returns for my portfolio as the UK economy reopens.
Cineworld share price problems
I think the outlook for Cineworld is binary. If the economic reopening proceeds as expected and consumers return to its cinemas, the company could see a surge in revenues and profits. This would allow it to pay down debt built up over the past 12 months and return to growth.
On the other hand, if the reopening doesn’t go as expected and consumers don’t return quickly, the company will have to borrow more money. It can’t really afford to do that. Shareholders might have to stump up more cash to support the business.
In the most optimistic scenario, the Cineworld share price could double from current levels. In the worst case, the company could collapse, wiping out investors.
Considering these risks, I wouldn’t buy the stock for my portfolio today. I think the risk is just too high for the potential reward.
FTSE 100 bargain
Instead of the Cineworld share price, I’d buy British Land (LSE: BLND). This real estate investment trust is well-positioned to profit from the economic reopening. Also, there’s no chance of it collapsing if the reopening doesn’t go as planned or the economic recovery sputters.
According to its latest trading update, the landlord is still earning a steady income from its office tenants. It’s also been able to sell retail assets and reinvest the capital back into new properties.
What’s more, unlike Cineworld, this property business has a strong balance sheet, underpinning growth plans. It recently won approval to develop a 38-storey tower in the City of London with its joint venture partner. These initiatives allow the company to make the most of a distressed environment, which may underpin growth for years to come.
This doesn’t mean the business is entirely risk-free. If the lockdown is extended, British Land’s profits will undoubtedly suffer. There are also concerns about its office portfolio as in recent months several large employers have revealed plans to reduce office space dramatically. These are the two main risks facing the company.
Even after taking these risks into account, I think the company is a better recovery play than the Cineworld share price. That’s why I’d buy the FTSE 100 real estate investment trust for my portfolio today. I think it’s cheap and could produce attractive returns as the economy opens up.
