Fear is back in markets around the world as investors scramble to understand the effects of the coronavirus outbreak and the sudden drop in oil prices. As nerve-racking as the market movements have been, they’ve provided an opportunity for investors to snatch up stocks with double-digit upside, according to research firm Jefferies.
”Certain facets of this year’s selloff have gone from notable to undeniably compelling,” Jefferies analysts wrote in a note to clients Tuesday. They highlighted stocks across industries that “have been unfairly punished in an unnaturally punitive tape.”
The picks include stocks like Activision Blizzard (ticker: ATVI), Amazon.com (AMZN), BlackRock (BLK), Home Depot (HD), Microsoft (MSFT) and Truist Financial (TFC) that are “generally considered higher quality names, are larger in , have strong balance sheets, produce robust cash flows and are differentiated peers,” the analysts wrote.
Here are some of the analysts’ picks:
• Amazon.com: At the end of Wednesday, the e-commerce company’s stock was down 6.2% over the previous five trading days, compared with a 10.3% drop for the S&P 500 over the same period. Analyst Brent Thill, who has a buy rating on stock and $2,300 price target, thinks Amazon is a “potential beneficiary of COVID-19, as consumers stock essential items and look to avoid crowded areas by ordering online.” The company could see a drop-off in advertising revenue and supply chains could see snarls, but he thinks Amazon is big enough and diversified enough to deal with a potential slowdown. And having about $30 billion in cash on its balance helps, too.
• Activision Blizzard: The gaming company’s stock was down 3.0% over the past five days at the end of Wednesday. Analyst Alex Giaimo “believes stocks are less exposed to the COVID-19 issue, and possibly even stand to benefit given the stay-at-home nature of their business model.” Activision has, he writes, good prospects because of its “solid visibility into the product pipeline, the company’s aggressive mobile approach” and he thinks the stock, which he has a Buy rating on, can rise more than 20%. Oppenheimer also thinks Activision’s shares are a buy right now, citing the release of its new Call of Duty Warzone game on Tuesday, which supports up to 150 players at once.
• BlackRock: As of Wednesday’s close, the world’s largest asset manager dropped 10.4% over the past five days. Things might not look so great right now, analyst Dan Fannon writes, given “the mark-to-market impact of the last two weeks is a headwind to AUM and earnings,” but he thinks that the “longer-term outlook for the organic growth of its leading iShares platform, active fixed income products and its technology offering remain strong.” Add to that the company has plans to buyback at least $1.2 billion in stock and has a current dividend yield of 3.3%. Fannon thinks the stock can gain about 25%.
• Home Depot: The home improvement retailer’s stock lost 10.3% in the last five trading sessions as of Wednesday. Analyst Jonathan Matuszewski thinks the “backdrop for home improvement is supportive over the medium term” thanks to lower rates, strong construction trends in cities and an uptick in remodeling rates as Baby Boomers look to age in place.
• Truist Financial: The bank formed by the merger of BB&T and SunTrust Banks has seen its shares plummet 24.9% over the past five days. Nevertheless, Jefferies analyst Ken Usdin thinks its earnings power is “better protected against downside risk” because of the $1.6 billion in cost-savings the bank expects to realize over the next three years from its merger and a countercyclical insurance brokerage business that makes up 11% of its revenues. Udsin thinks the stock can rise about 65% from its current level.
• Microsoft: The software giant’s stock was down just over 7.9% over the last five days. The company dropped guidance for its “More Personal Computing” unit which Jefferies analyst Brent Thill points out “was solely due to lowered Surface and Windows OEM expectations related to COVID-19.”
But that issue, he thinks, will be temporary and, more important, isn’t a key market of the strength of Microsoft’s broader business. Thill says Microsoft has “a clear line of sight into double-digit revenue growth for the foreseeable future” and “is uniquely positioned to benefit from the growth of both the / markets as well as the market.” He thinks the stock can rise more than 20%.
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