InvoCare’s five-star rating: looking beyond the grave times

It’s tempting to see a morbid irony in the fact that among Morningstar’s 11 “wide-moat” stocks—those deemed to have a 20-year competitive advantage—the most undervalued is funeral home operator InvoCare (ASX: IVC).

InvoCare’s network of funeral homes, cemeteries and crematoria spans Australia, New Zealand and Singapore. This network, which includes its flagship brand, White Lady Funerals, comprises more than 290 funeral locations and 16 cemeteries and crematoria, and in Australia, it is the market leader, boasting a share of about a third.

If anything is hurting InvoCare in these times, it’s not the number of deaths in Australia attributed to the coronavirus (92 at lunchtime on Friday) but rather the ban on large gatherings. Since the lockdown measures were imposed on 23 March, InvoCare has fallen by about 15 per cent whereas the ASX200 has risen by about 16 per cent. It rose half a per cent on Friday, defying a 5 per cent plunge in the broader market.

Morningstar’s 11 'wide-moat' stocks are those deemed to have a 20-year competitive advantage

It’s since deferred its dividend and has embarked on a $200 million raising to shore up the balance sheet.

“Social distancing measures due to COVID-19 are leading to lower case averages as smaller funerals weigh on pricing,” says Morningstar analyst Mark Taylor. “However, there is little impact to case volumes, as number of deaths are broadly following long-term averages.”

Whether the nation’s undertakers are shovel-ready remains to be seen but government murmurings about an easing of lockdowns may perhaps enliven InvoCare management. You can find out Taylor’s thoughts on the share purchase plan here.

Looking at the Morningstar 11 more broadly, InvoCare is in the half that carry a medium uncertainty rating (along with, in order of most discounted, Auckland International Airport (ASX: AIA), Brambles (ASX: BXB), Transurban (ASX: TCL), Wesfarmers (ASX: WES), ASX (ASX: ASX) and Cochlear (ASX: COH).) The big four banks, which round out the Morningstar 11, now carry high uncertainty ratings in light of the near-term volatility.

Speaking of banks, Morningstar analyst Nathan Zaia says that while the near-term picture is grim, NAB (ASX: NAB) looks undervalued—as do CBA, WBC and ANZ—and that investors should consider its entitlement offer. 

Emma Rapaport picks the bones out of Sharesight, our online portfolio-tracking affiliate, to reveal what retail investors have been up to. Google Trends shows the term “buy shares” has been clogging up the search engines of Australian internauts, and Rapaport finds that bear-themed ETFs and blue chips have garnered interest during the volatility.

Glenn Freeman looks for value among retail shares and examines the hit to travel and leisure stocks; Nicki Bourlioufas measures the future of the housing sector and that of waste management play Bingo to see how it’s holding up; and Morningstar healthcare strategist Karen Andersen explains why she has increased her fair value estimate for the wide-moat pharmaceutical company Gilead Sciences.

Elsewhere this week, in Firstlinks Graham Hand explores why patience in equity investing is usually rewarded. He has six captivating charts that show how often investors will lose capital in any year in Australian equities, but also how the long term usually delivers good outcomes.

Hand also looks back at a compelling 2008 article by Motivated Money’s Peter Thornhill to prove that from an investing perspective this crisis is “precedented”.

And finally, Peter Warnes makes the case for sticking on the sidelines rather than banking on hope and argues a V-shaped recovery looks nigh on impossible.