The stock market crash has thrown up some incredible buying opportunities. You can find a bargain FTSE stock almost everywhere you look. The world’s greatest investor, Warren Buffett, built his wealth by taking advantage of buying opportunities like this one, but he doesn’t buy stuff just because it looks cheap.
Today, the Cineworld Group (LSE: CINE) share price is up an incredible 46%, as investor sentiment surges on signs the European outbreak may be slowing, encouraging people to take a punt on riskier stocks. The Cineworld share price isn’t the only dramatic climber, FTSE 100-listed cruise operator Carnival (LSE: CCL) is up 26%.
As the stock market crash turns into a potential recovery, would Warren Buffett open his wallet for these two?
Cineworld share price is so cheap
It’s been a good week for the FTSE 100, which has risen sharply for two consecutive days to over 5,700 at time of writing, up 15% since dipping below 5,000 on 23 March.
In the short run, the index could go anywhere from here. It could fall 1,000 points, or rise 1,000 points, nobody knows. I don’t, you don’t, and neither does Warren Buffett, who believes timing the market is both futile and dangerous. “I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” the Sage of Omaha has said.
Bargain FTSE stock fails the Warren Buffett test
Investors seem to be rushing to get a piece of the Cineworld share price and Carnival share price today because they think Covid-19 is on the run, and shares hit hardest in the stock market crash are likely to rebound fastest.
FTSE 250-listed Cineworld has crashed as social distancing regulations killed off the cinema visit. It is trading 86% lower than this time last year, with a crazy low valuation of just 1.78 times earnings. That’s a bargain FTSE stock by conventional metrics, but a different matter in today’s unprecedented situation.
Cineworld’s problems pre-date the crisis, as it is loaded with $4bn of net debt, following last year’s highly leveraged acquisition of Regal Entertainment, and faces stiff competition from streaming services such as an Netflix, Amazon Prime, HBO and next up, Disney. Warren Buffett likes a company with a competitive moat, but Cineworld has serious challengers.
Carnival share price scares me
Carnival also worries me, because frankly who would want to book a cruise right now? I don’t even want to go to the supermarket. Especially since further coronavirus outbreaks are likely. Carnival stock stock is down 81% measured over a year, and trades at just 2.02 times earnings.
The group has raised nearly $6bn in net debt to see it through the stock market crash. But we don’t know how long the current troubles will last. Warren Buffett loves it when a “great company gets into temporary trouble”, but Cineworld’s and Carnival’s troubles seem far from temporary to me.