5 Fallen Angel Stocks Could Be Huge Winners Down the Road

Investing

Published: March 11, 2019 7:25 am

Last Updated: January 30, 2020 11:42 pm

You don’t have to be a stock market historian to know that many times over the years great companies have slipped, and they were promptly taken out to the woodshed. The pundits may move away from supporting a company for many reasons: bad earnings, cutting the dividend, changes in top management and a host of other reasons. One thing is for sure, and that is patient investors that scoop up good stocks that have fallen on tough times are often rewarded in a big way. Ask those that bought Apple in 2009 at $12.50.

We screened our 24/7 Wall St. stocks database looking for some companies that have been absolutely eviscerated, and we found five that may offer patient investors some real bargains.

BlackBerry

This was the first smartphone-type company, but it was buried when Apple released the iPhone. BlackBerry Ltd. (NYSE: BB) continues transitioning from a mobile hardware provider to a mobile-focused security software and services company. Its portfolio of products includes BlackBerry Secure Unified Endpoint Management, crisis communication, corporate asset tracking, cybersecurity services and other secure collaboration software and communication technologies.

The company also licenses its brand/IP for mobile devices and its QNX business provides leading embedded software systems. BlackBerry recently named Bryan Palma as president and chief operating officer. Palma was most recently Cisco’s senior vice-president and general manager of customer experience for the Americas. Before joining Cisco, he was the vice-president of cyber and security solutions at Boeing.

Macquarie has a Buy rating and a huge $12.50 price objective. The Wall Street consensus target is $10.31, and the shares closed trading on Friday at $9.18.

CenturyLink

This company offers solid value, has zero foreign sales exposure, but was crushed when it cut its dividend. CenturyLink Inc. (NYSE: CTL) is the nation’s third-largest telephone company and the largest rural exchange provider serving residential, enterprise and wholesale customers. It is the product of the acquisition of Embarq by CenturyTel in 2008, Qwest Communications in 2011 and Level 3 Communications in 2017. Embarq is Sprint’s former wireline unit.

With the Level 3 acquisition integrating well and things looking up for the company, the dividend cut was somewhat of a surprise as the company has more than enough free cash flow to cover it. However, executives made the tough decision so they could focus on paying down the large debt load.

Note that the chief executive officer and the chief financial officer of the company made some huge insider purchases after the stock was mauled.

CenturyLink investors are still paid a solid 8.65% dividend. Morgan Stanley has a Buy rating and a target price of $16, while the consensus price objective is $14.07. The stock closed trading at $12.30 on Friday.

Ford

This is a solid value play now, and demand could jump with a trade deal with China paving the way. Ford Motor Co. (NYSE: F) is one of the world’s largest vehicle producers, with over 6 million units manufactured and sold globally. The company has made significant progress executing on its One Ford plan and delivering best-in-class vehicles.

The company also remains committed to positioning itself well within the evolving auto industry through balanced investments across electrification, autonomy and mobility services.

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Ford reported fourth-quarter adjusted earnings per share in line with revised estimates, although core operating results were a bit weaker than some expected. Ford continues to struggle amid a volatile global market, exacerbated by some perceived critical missteps that may partially abate later this year.

Shareholders receive an outstanding 7.08% dividend, which could be lowered this year. JPMorgan’s Buy rating comes with a $12 price target. The consensus price target is much lower at $9.32. Shares closed most recently at $8.42.

General Electric

If any stock has taken a beating over the past two years, it has been this former industrial powerhouse. General Electric Co. (NYSE: GE) businesses are organized broadly under seven segments: Power, Renewable Energy, Energy Connections, Oil & Gas, Aviation, Healthcare, Transportation and GE Capital. The company’s products and services include power generation equipment, aircraft engines, locomotives, medical equipment, compressors and others. Over half of the business is tied to service and aftermarket support.

Last year the venerable American industrial giant got the ultimate humiliation of being removed from the Dow Jones industrial average after a stay of over 100 years.

The massive restructuring and debt reduction plans that have been announced come after years of acquisitions and changes in the core business at GE, and in some cases what many on Wall Street thought were ill-advised moves by the former CEO Jeff Immelt. The company’s once dependable dividend has been chopped to $0.04 a share and may be eliminated altogether at some point.

Investors in GE receive just a 0.44% dividend. The $15 Citigroup price target on the Buy-rated shares is higher than the $11.61 consensus target. The shares closed at $9.58.

ALSO READ: 5 Stocks Trading Under $10 That Could Have Gigantic Upside Potential

Kraft Heinz

Kraft Heinz Co. (NYSE: KHC) was formed almost three years ago via the merger of H.J. Heinz and Kraft Foods. The company is the leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Mayer and Maxwell House.

The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% from International. The company’s many brands also include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.

The company not only cut the dividend but also missed earnings on both the top and bottom lines, and it took a massive $15.4 billion write-down on goodwill primarily related to its Kraft and Oscar Mayer brands. Some on Wall Street think the company may be taken private. Warren Buffett, who owns a controlling stake, was reported to be holding all his stock.

Kraft Heinz shareholders are paid a 4.87% dividend. Jefferies has a Buy rating and a $40 price target. The consensus target price is $38.52, and shares were last seen at $32.10.

The one key ingredient for investors considering buying shares of any of these companies is to count on holding them for a while. Wall Street is not real good at forgiving and forgetting, so investors should be prepared to be patient.

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