Four Stocks to Watch In October

It is safe to say that many investors will be glad to see the back of September. The ninth month of 2021 was, generally speaking, a bad one for the equities market, with many of the major indices ending the month in a worse position than when it started. Hit particularly hard were the US benchmark indices – with the S&P500, DJI30 and Nasdaq all falling by 4.8%, 4.3% and 5.3% respectively.

Whilst many hope for an October recovery, it is possible that we will see continued uncertainty due to increasing inflation, ongoing global supply chain issues and the as of yet unclear fate of Chinese property giant Evergrande. Therefore, traders and investors should be braced for a potential increase in volatility over the coming weeks.

To help you navigate the stock market this month, we have identified and analysed a handful of stocks to watch for the final quarter of this year. In particular, we will be looking at Royal Dutch Shell, Wise, IAG and Alibaba.

Royal Dutch Shell

Unless you have been living in a cave for the past few weeks, you will be aware that there is a bit of an energy crisis going on at the moment.

The price of oil recently hit three year highs, trading at $80 a barrel, whilst gas prices have soared to record highs in recent weeks. These rising prices have caused several UK suppliers to collapse in recent weeks as they were unable to pass the rising prices onto consumers. Naturally, the rise in energy prices is of concern for many, however, Royal Dutch Shell and their shareholders will most likely be licking their lips at present.

In three weeks, Shell’s share price has shot up more than 20% as the company reaps the rewards of higher energy costs.

In their Q2 results, Shell reported adjusted earnings of $5.5 billion US dollars a 71% increase from the Q1 earnings ($3.2 billion) and 767% higher than the $638 million from the same quarter in 2020.

Despite these positive results, Shell’s share price is still trading more than 20% lower than its pre-pandemic levels

The positive results allowed Shell to raise its quarterly dividend payment for the second quarter in a row, after reducing its dividend in 2020 for the first time since the Second World War. Shell also announced that they would be launching a $2 billion share buyback programme, which is usually a positive sign for investors.

With the energy crisis set to persist throughout the northern hemisphere’s winter, we could witness a continuation of this upward momentum in the Shell share price over the coming months.

Wise

Wise, formerly TransferWise, was founded in 2011 as a solution for customers incurring costly bank fees from transferring money abroad. In February 2021, the company rebranded as Wise ahead of their direct listing on the London Stock Exchange (LSE) later the same year, to reflect that the future of this company lies beyond international remittances.

On 7 July 2021, Wise stock was listed on the LSE, debuting at 800p, and, despite beginning life as a public company positively, its share price has recently plummeted.

Problems began when the share price fell 6.5% two weeks ago upon the news that the company’s CEO, Kristo Kaarman, had been fined £365,651 by HMRC for defaulting on his tax bill. After an initial dip, the share price seemed to recover and maintained its support level. However, after several days of gains, a fresh sell-off began and the stock fell sharply, breaking through its previous support and continuing to fall.

The reason behind this sell-off is not entirely clear, although it is possible that investors are spooked by the Kaarman’s current tax issues and the implications this has on his ability to lead Wise going forward. The FCA has strict rules surrounding acceptable conduct for financial companies directors and the problems with HMRC could see the UK’s financial regulator take further action against the CEO.

This sell-off, then, could provide investors who feel bullish on Wise’s long-term future with a unique opportunity to pick up shares at a cheap price.

An Impressive Business With Growth Potential

Wise came into existence to challenge and revolutionise the way in which person-to-person remittances were conducted throughout the world. Their business model and future growth potential are both impressive.

Wise allows its customers to hold their account balance in over 50 different currencies, spend it internationally with a Wise debit card and send international transfers with ease and at lower costs than traditional banks and many of their other competitors.

According to their Expected Intention to Float, Wise has 10 million customers worldwide and sends over £5 billion across borders each month. This represents a small, but growing, percentage of the total figure of £2 trillion “personal cross-border” payments made in 2020 – according to Wise’s Registration Document.

Recently, the company released their new Assets feature, where customers can now choose to either hold their deposited funds in an index fund which tracks the MSCI World Index – allowing savers to dip their toes into the world of investment. For this new service, Wise will charge a 0.4% annual fee.

Is Wise a Buy?

It is a curious phenomenon, unique to the stock market, where if a stock we feel bullish about suddenly falls in value our natural inclination is to avoid buying it. If you applied this scenario to any other desired product, a new car or the latest smart phone for instance, a fall in price would have the complete opposite effect!

Something is certainly spooking shareholders at the moment and whether this is solely down to the fear of future action from the FCA or what Kaarman’s tax blunder says about his ability to lead Wise going forward is unclear. What is clear is that potential investors will need to monitor the situation closely and conduct their own analysis before making a decision.

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International Consolidated Airlines Group (IAG)

Travel stocks were handed a much needed boost last month - when the US announced that, from early November – their borders would once again be open to European tourists, having been off limits since the outbreak of the pandemic.

Although no concrete date was provided for when this would happen, many travel stocks jumped upon hearing the news, as investors began to once again feel bullish about the industry. Many airlines responded particularly well to the announcement, among them the Anglo-Spanish conglomerate IAG – owner of airlines such as British Airways and Iberia.

IAG shareholders have endured a tough time during the pandemic, with share price currently down 62% over the past 24 months. However, since the announcement from the US on 20 September, the IAG share price has risen almost 19% and is up 82% over the past 12 months.

International Travel Opens Up

Future prospects for IAG are further improved by the UK’s revamped rules surrounding foreign travel destinations. On 4 October, the country officially scrapped its traffic light system, switching instead to simply a list of countries to which travel is prohibited and in the process opening up quarantine-free travel to a number of new destinations for fully-vaccinated travellers.

Moreover, on 8 October, the UK announced that their former ‘red’ list would be trimmed from 54 countries to just seven, prompting a flurry of travel bookings to previously unavailable destinations.

Although it will no doubt take time for IAG to return to their pre-pandemic levels, if they ever do, all these relaxations in travel restrictions, combined with a faster than expected UK economic recovery, point to a potentially positive final quarter for the IAG share price.

The obvious danger with investing in IAG, and other travel stocks, is the ever-present Covid-19. Any fresh outbreaks or new variants of concern could cause a reversal in the recent relaxation in travel restrictions.

Alibaba – Are We Witnessing a Reversal?

Two weeks ago, we wrote that – due, in part, to ongoing regulatory pressure from Beijing - traders may wish to consider taking a short position against Alibaba. In the week which followed, Alibaba’s share price fell 7.8%, continuing the trend it has been following for the best part of a year.

However, on 7 October, the stock surged higher, closing the session 8.5% above the previous day’s close. But why? Are we about to see a dramatic trend reversal in the Alibaba share price?

Alibaba presents a peculiar case. If we look at the company from a purely fundamental point of view, then Alibaba looks like a great investment. However, its recent poor performance in the stock market is due to the fact that, for the past year or so, Beijing has become increasingly tougher on the country’s big tech firms. This is not only negatively affecting Alibaba’s realising its full potential, but is also spooking investors.

A Strained Relationship

Another big problem for investors is the strained relationship between the US and China, which was expected to improve when Joe Biden moved into the White House. Until recently, this improvement had not materialised in any significant way.

However, on 6 October, Beijing diplomat Yang Shei met with US National Security Advisor Jake Sullivan. Shei announced that the meeting had been “constructive”. The same day, as a consequence of this meeting, it was announced that Biden and China’s Xi Jinping will meet “virtually” before the end of the year. This news proved a catalyst for Alibaba’s share price, which shot up in the next day’s session and continued its rise on Friday.

It is entirely possible that this change in fortune will be short-lived and share price may continue its downward trajectory. However, it is possible that we could be witnessing the beginning of a trend reversal in Alibaba’s share price.

Does Alibaba Present Value? Charlie Munger Thinks So

Charlie Munger, as well as being partner to legendary investor Warren Buffet and vice chairman of Berkshire Hathaway, is also chairman of The Daily Journal. Despite being a newspaper, The Daily Journal invests its cash holdings in equities.

Earlier this year, the company disclosed that it had bought 165,320 shares in Alibaba at the end of Q1. Although during Q2 and Q3 the Alibaba share price fell almost 35%, in a recent filing, The Daily Journal disclosed at the end of Q3 they had almost doubled their position in the Chinese company to 302,060 shares.

Munger, like Buffet, is famous for being a value investor – the practice of identifying and buying stocks whose price is lower than their true value. Munger’s bullish acquisition of Alibaba shares implies that he thinks, despite his losses, that Alibaba shares are worth more than their current market value suggests.

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