It’s been 100 years since the United States and the world has encountered a pandemic like COVID-19. The Spanish flu, responsible for the 1918 flu pandemic, was unusually deadly. Lasting almost 36 months from January 1918 to December 1920, it infected 500 million people, about a third of the world’s population at the time.
While the medical community doesn’t seem to feel that the current pandemic will produce anything close to the death count of the Spanish flu, the staggering damage done to the world economy will resonate for quite some time. Across Wall Street, there has been much debate over whether we have a V-, U- or W-shaped recovery coming.
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Given the extraordinary circumstances, and the velocity of the selling and corporate balance sheet damage, it is almost impossible to predict the outcome with any certainty. The analysts at Raymond James have come up with lists of stocks to buy under all three recovery scenarios. They noted this in the report:
Eventually, economic activity is going to drive a recovery in profits, but because the world has never been through a disruption like this, no one knows with any certainty how fast economic activity will return. For this reason, we believe thinking in terms of scenarios makes the most sense at this point, and note that, historically, “U” shaped recoveries tend to occur where earnings bottom, and stabilize for a while, before returning to pre-recession levels over the course of 3-4 years. The “V” shaped recovery is less and less likely, in our view, given the lack of a proven therapeutic near term, but certainly a potential if a medical cure or virus mutation is found in the coming months. Finally, a “W” shaped recovery would be one in which economies are open and closed periodically over the next 1-2 years as effective therapeutics and vaccines are not discovered, forcing not just a deeper recession, but a longer recession than typical with corporate earnings likely not reaching 2019 levels again until after 2023, and likely locking in what seems like short term consumer behavior today, into a “new normal” for several years.
The Raymond James analysts created three lists of 30 to 35 companies. All stocks on the lists are currently Strong Buy or Outperform rated by the analysts, and they have been curated by each analyst for each economic scenario. Then they arranged the lists based on market cap, leverage and sector preferences that would be likely under each scenario.
We screened each of these lists looking for companies that also have had strong insider buying during recent trading. Here we look at five companies that could excel in a more prolonged U-shaped recovery.
AutoZone
Given the lockdown and stay-at-home edicts, people have plenty of time to work on their vehicles, and this is the retail leader. AutoZone Inc. (NYSE: AZO) is the nation’s largest auto parts and accessories retailer, with almost 5,800 stores in the United States and over 600 stores in Mexico and Brazil, as of fiscal year-end 2019.
Founded in 1979, AutoZone sells automotive maintenance and repair parts, as well as accessories, generating annual sales of more than $11 billion. The company targets the retail do-it-yourself market and the commercial market. Its stores are company-owned and operated.
The company’s third-quarter earnings estimate has been lowered to $13.68 per share from the previous consensus of $14.04, while the estimate for 2020 has been lowered to $60.93 per share from $61.37. The full-year 2021 estimate also has been decreased, from $67.75 to $67.48 per share.
Raymond James has a $1,350 price objective for the shares, but the Wall Street consensus target is much lower at $1,080.90. AutoZone stock closed Tuesday’s trading at $1055.40 a share.
Global Payments
As the economy starts to ramp up, this top company should benefit. Global Payments Inc. (NYSE: GPN) provides payment technology and software solutions for card, electronic, check and digital-based payments in North America, Europe, the Asia-Pacific and Latin America.
The company operates through three segments. The Merchant Solutions segment offers authorization services, settlement and funding services, customer support and help-desk functions, chargeback resolution, terminal rental, sales and deployment, payment security services, consolidated billing and statements, and online reporting services.
The Issuer Solutions segment offers solutions that enable financial institutions and retailers to manage their card portfolios through a platform, as well as commercial payments and ePayables solutions for businesses and governments.
The Business and Consumer Solutions segment provides general-purpose reloadable prepaid debit and payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses under the Netspend brand.
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Shareholders receive just a 0.50% dividend. The Raymond James price target is $165, lower than the $177.89 consensus target. Global Payments stock closed most recently at $162.90.
MasterCard
This continues to be one of the top credit card plays in the world. Mastercard Inc. (NYSE: MA) is a global payments provider that operates one of the largest payment processing networks, connecting billions of consumers, millions of merchants, and thousands of financial institutions in more than 210 countries. Its brands include Mastercard, Maestro and Cirrus.
The company also provides value-enhancing offerings such as loyalty and rewards programs, information services and consulting. According to Nilson estimates, Mastercard is the third-largest global credit and debit network, as measured by volume.
Small businesses and individuals having a hard time entering the digital economy are getting a boost from Mastercard as the need to receive funds electronically and make digital and contactless payments has been underscored by the COVID-19 pandemic.
The company is pledging to connect 1 billion people and 50 million small businesses to the digital economy by 2025. This commitment is an extension of its 2015 promise to bring 500 million people who don’t have ready digital access to financial products into the system.
Investors receive a 0.60% dividend. Raymond James has set a price target of $288. The consensus target is $306.48, and the final trade for MasterCard stock came in at $264.76 on Tuesday.
Oracle
This top software stock has bounced nicely off its 2020 low but still offers a very good entry point. Oracle Corp. (NYSE: ORCL) develops, manufactures, markets, sells, hosts and supports database and middleware software, application software, cloud infrastructure, hardware systems and related services worldwide. It also is one of the most valuable brands in the world.
The company licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval and manipulation of various forms of data. Its Oracle Fusion Middleware software aims to build, deploy, secure, access and integrate business applications, as well as automate their business processes.
Oracle stock investors receive a 1.80% dividend. The $56 Raymond James price target compares with the $50.27 consensus target and the most recent close at $53.20.
24/7 Wall St.Verizon
This top telecommunications stock offers tremendous value at current levels. Verizon Communications Inc. (NYSE: VZ) is one of the largest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.
The company’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Verizon’s wireline business has undergone a period of secular decline due to wireless substitution and cable competition. Verizon acquired AOL and Yahoo to create the Oath digital content platform.
Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide. Furthermore, Verizon is another of the most valuable brands in the world.
Shareholders receive an outstanding 4.26% dividend. The $61 Raymond James price target is right in line with the $61.32 consensus target. Verizon stock closed Tuesday’s trading at $57.84.
These five companies could be big winners if the recovery is U-shaped in nature and we trade sideways for a while before turning higher. It is important to remember that all their stocks have seen substantial insider buying recently, which is one of the best indicators for stock investors.
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