- Equity analysts at Jefferies have compiled a list of stocks across sectors they deem attractive during this period of severe market volatility, as the coronavirus outbreak spreads.
- They included companies that “held up well in the last downturn, businesses that are well differentiated vs. peers and stocks that have both yield and the cash-flow to support their dividend.”
- For instance, analysts recommended Planet Fitness. Shares have plunged 45% from recent highs, though the business benefits from predictable revenue streams and consumers’ focus on health and wellness.
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The Federal Reserve’s emergency interest-rate cut and unprecedented easing measures did little to slow selling that’s rocked the stock market for weeks. The S&P 500 plummeted roughly 10% on Monday after trading was halted, and major US indexes languished throughout the day.
The losses dragged US stocks further into bear market territory and showed just how rattled investors are about the economic fallout of coronavirus. As of Monday, the Dow Jones Industrial Average and S&P 500 in the US were both down around 25% from their respective all-time highs hit just last month.
Amid the wreckage, equity analysts and strategists are laying out stock picks and investment strategies to try and weather the storm. In a note to clients on Monday, equity analysts at Jefferies compiled a list of stocks across sectors they deemed attractive during this period of severe market volatility.
Analysts at the New York-based investment bank selected “high-quality names” that investors ought to own “across a cycle,” with “healthy cash-flow and very robust balance sheets.”
“The companies below include those that held up well in the last downturn, businesses that are well differentiated vs. peers and stocks that have both yield and the cash-flow to support their dividend,” they wrote.
For instance, analysts recommended Planet Fitness; shares have plunged around 45% from recent highs, though the business benefits from predictable revenue streams and consumers’ focus on health and wellness, they wrote.
Altogether, analysts names nearly 50 buy-rated stocks from each sector they cover, which excludes the utilities sector.
Below, we list one stock from each sector that Jefferies recommended: information technology, healthcare, financials, consumer discretionary, communication services, industrials, consumer staples, energy, real estate, and materials.
Crystal Cox/Business Insider
Sector: Information technology
Price target: $245
Investment thesis: Analyst Trevor Williams thinks Visa’s stock has been “disproportionately punished” in the broader market’s sell-off as cross-border business has slowed unexpectedly.
While Williams thinks Visa is likely to feel pressure to its revenue and earnings per share during the first quarter, he believes the COVID-19 financial impact should prove “transitory.”
He believes the credit card company’s long-term growth strategy is unchanged.
Eric Risberg/AP Images
Price target: $89
Investment thesis: Analyst Michael Yee is recommending the biotech name Gilead, which he says has traded higher recently on hopes it will develop a potential coronavirus treatment.
He thinks the company is cheap relative to its competitors, trading at 10x to 11x earnings, and offering a dividend yield of 3% to 4%.
Three years ago, Gilead acquired Kite Pharma, which makes cancer treatments. Jefferies acted as a financial adviser to Kite in its $11.9 billion sale to Gilead.
“The company also has a strong balance sheet and will continue to deploy capital towards bolt-on acquisitions, including the recent $5B FTSV deal, which will drive a larger oncology pipeline in the next two years,” the firm wrote, referring to a separate acquisition Gilead made earlier this month.
SVB Financial (SIVB)
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Stock: SVB Financial
Price target: $293
Investment thesis: The Federal Reserve’s interest-rate cuts have created near-term challenges for banks of all shapes and sizes, as lower rates eat into firms’ net interest income that’s so closely tied to rates.
But analyst Casey Haire is bullish on owning SVB Financial, the parent company of Silicon Valley Bank, which is primarily known as a lender to technology executives and their startups.
Haire “expects innovation markets to rebound strongly once economic damage from pandemic subsides and SIVB is well-positioned to capitalize given their 50% market share of early stage tech innovation companies,” and pointed to the stock’s relatively cheap valuation at 1.3x tangible book value. Its historical average is 2.3x.
Silicon Valley Bank is also looking to diversify its business lines by pushing further into wealth advisory and private banking, Business Insider previously reported.
Dollar General (DG)
Stock: Dollar General
Sector: Consumer discretionary
Price target: $190
Investment thesis: Analyst Chris Mandeville is recommending shares of Dollar General, the dollar-store operator that he calls a “unique and compelling name to own in today’s environment.”
Mandeville said even as it’s fallen around 15% amid the coronavirus outbreak, it’s a highly defensive name — Dollar General has reported three consecutive decades of growth in same-store-sales figures (a metric retail analysts watch closely). Mandeville is also encouraged by the company’s free-cash-flow.
Sector: Communication services
Price target: $72
Investment thesis: Analyst Alex Giaimo thinks that in this environment, video game companies “are less exposed to the COVID-19 issue, and possibly even stand to benefit given the stay-at-home nature of their business model.”
The owner of the popular game Call of Duty is Giaimo’s “favorite” name in the group, bolstered by its aggressive approach to mobile gaming and the kind of visibility it offers into its pipeline of products.
L3 Harris Technologies (LHX)
Ryan Pickrell/Business Insider
Stock: L3Harris Technologies
Price target: $260
Investment thesis: Analyst Sheila Kahyaoglu is recommending L3Harris Technologies, the defense contractor that’s fallen around 30% from its high in mid-February.
L3 Technologies and Harris Corporation merged in a 2018 deal that closed last year, and Kahyaoglu is encouraged by the merger’s cost-savings that came out of the combination. She’s also encouraged by a cumulative free-cash-flow yield of 24.4% between this year and 2022.
Church & Dwight (CHD)
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Stock: Church & Dwight
Sector: Consumer staples
Price target: $86
Investment thesis: Analyst Kevin Grundy calls Church & Dwight, the consumer goods conglomerate that owns brands like Orajel, OxiClean, and Trojan, “recession-resistant.”
It “remains the consummate consumer staples stock wellpositioned to weather a potential deterioration in macro-economic conditions,” Grundy said, citing strong organic sales growth.
Church & Dwight, based in New Jersey, has met or beaten its earnings-per-share guidance since at least 2004, Grundy wrote, and said it’s shown strong international sales growth.
Price target: $90
Investment thesis: Analyst Jason Gammel is recommending the energy giant Chevron, which he says has “the strongest balance sheet” in the integrated oil space.
The San Ramon, California-based company has an “industry-leading” position in the Permian Basin, which he says in turn offers visibility into the company’s production growth over the next decade.
Gammel is encouraged by its consistent dividend payout, which he says it’s increased on an annual basis for 33 consecutive years.
Sector: Real estate
Price target: $718
Investment thesis: Analyst Jonathan Petersen thinks the Redwood City, California-based company Equinix, which acts as a sort of landlord to data-center facilities, is well-positioned beyond the hit its stock has taken amid the market’s rout.
The company’s 9,700 customers across 55 markets pay Equinix for space and racks in its centers, outfitted with the the proper infrastructure for energy-intensive operations.
“In this work-from-home and school-from-home environment, the whole internet infrastructure is going to be taxed which creates demand,” he wrote.
While the company’s dividend yield of 1.8% is below the industry average, Petersen is encouraged by its growth since 2015, when it began offering a dividend.
Rio Tinto (RIO)
Stock: Rio Tinto
Price target: $60 (NYSE-listed ADR)
Investment thesis: Analyst Christopher LaFemina is recommending the London-based metals and mining company, which he says is one of the largest and “lowest-cost iron ore miners in the world with a strong balance sheet.”
The company, which produces metals including iron ore, copper, and titanium, offers an attractive dividend at 8%, and generates significant free-cash-flow, LaFemina said.
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