Earlier this week some of the country’s top fund managers presented stock ideas at the Future Generation Investment Forum.
Philip King of Regal Funds Management named Qantas Airways Limited (ASX:QAN) as his top stock pick.
According to a summary of the forum posted on the Future Generation website, Mr King said Qantas trades on a price to earnings ratio (P/E) of just 9 times, yet revenues and earnings are growing strongly making Qantas “the cheapest stock in the ASX 100.”
Mr King said the Qantas share price could easily go up 50 per cent.
Much of the company’s earnings comes from three jewels in the crown — its domestic airline, Jetstar and the Qantas Frequent Flyer program. The international airline is not as significant to the overall Qantas business.
Mr King identified three catalysts to help push the share price higher in the coming 6 months.
- Results in August could beat expectations, forcing analysts to increase their share price target for Qantas shares.
- The reinstatement of a consistent fully franked dividend yield. Mr King said the dividend could be up to 40 cents. With the Qantas share price currently trading at $6.34, that would translate to a fully franked dividend yield of 6.3 per cent. Such an attractive dividend yield would bring back Australian shareholders.
- Last November, Qantas was deleted from the MSCI index because it had too many foreign shareholders. With the potential return of Australian shareholders to the register, it could lead to Qantas being reinstated to the MSCI index. This alone could drive a 30 per cent gain for the Qantas share price.
The Qantas share price has jumped 262 per cent higher over the past 5 years, the 3rd best ASX 100 performer over that period. Only Northern Star Resources Ltd (ASX:NST) and Aristocrat Leisure Limited (ASX:ALL) have gained more than Qantas shares.
Source: The Capital Club. Qantas share price over last 5 years.
Editor’s note: Qantas is a member of The Capital Club 10, a basket of ASX 200 companies I believe have a good chance of out-performing the S&P/ASX 200 Index over the next 3 years.