Is it fair to say that the state of the markets and the economy in 2020 is unprecedented and uncharted? Imagine that the economy went from strong gross domestic product and the lowest unemployment rate in decades to a period of unprecedented selling in the stock market, massive rate cutting and stimulus, surging unemployment and layoffs. At the start of the year, this was not what the charts (nor the tea leaves and chicken bones) were suggesting at all. Zoom forward about 75 days from the lows in March, and stocks have somehow surged and regained almost all their losses.
24/7 Wall St. has been tracking the moves ahead of and during the COVID-19 instant recession, and the current theme for the stock market has been how the “reopening and cyclical stocks” are now leading the way. Many other sectors are recovering as well, from travel and leisure to retail to housing. With America having been given a hard lesson about distant supply chains over the past 18 months or so, it’s time to look at some of the industry leaders and well-known cyclical companies again. Despite the snapback rallies since mid-March, there may still be more room ahead in some of the top cyclical names.
These are what some might even think of “base economy” stocks, because none of the buildings, industrial goods, manufactured goods and consumer products that are enjoyed all over the world could nor would ultimately exist without them. That said, none of these are consumer products companies as their primary operations.
Before looking for the next big great stocks to buy, note that the current market euphoria could easily have risen too far. It could be that the current enthusiasm may be too far ahead of itself or just misplaced. The stock market is a live-money voting pool full of trillions of dollars betting on how the economy will be six months or so down the road. As of the start of June in 2020, there is still a recession, there is still a widespread (yet dwindling) fear of the coronavirus, and the nation is facing civil unrest, with protests and demonstrations turning to violence in many locations.
Zero assurances can be offered up about the stock market. Now that the S&P and Dow Jones industrials have recovered the lion’s share of their losses (and the tech-heavy Nasdaq is challenging new highs), some investors still so far have not participated. Jumping in on days or weeks of huge gains comes with great risk of overpaying or getting in just in time for the next drop.
24/7 Wall St. has specifically looked at industry leaders and well-known companies in their sectors that are cyclical and would tie in with a “base economy” theme, and with shares that have not yet come close to their prior 52-week highs. We have showed how much they were up from their lowest daily closing price (not intraday lows) from March, and we have shown how far they would need to run to hit their 52-week high. We also have shown the latest data on the Refinitiv consensus analyst price targets to see if Wall Street thinks there is room to run or if they are feeling toppy again. Oh, and there are some charts to consider as well. There also has been a review of dividends in these selections.
Dow Inc. (NYSE: DOW) thinks of itself as a materials science solutions company, but let’s break it down as plastics, industrial chemicals and products, coatings and other segments within materials, and it caters to just about every product and industry that makes and consumes “widgets.” Dow’s share price was up 4.65% at $44.70 on Friday afternoon, up a whopping 100%-plus from the $21.61 low close that was seen on March 21. The drop from $40 to under $25 and to that low close only took seven trading days, proof enough of a panic selling frenzy. It took until May 27 for Dow to see $40 again, and it took until June 2 to close above $40 again.
Despite the doubling from the bottom, Dow’s stock price would have to rise 26% to hit the 52-week high of $56.25. The consensus price target was $38.57 ahead of this last move, and the bias from the analyst calls throughout May was overwhelmingly negative to cautious right into a major rally.
Huntsman Corp. (NYSE: HUN) was trading at $24.00 heading into 2020, but by the panic-selling nadir in March it was closer to $12. At $20.20 on Friday, shares had rallied 57% since the closing low of $12.87 seen on March 23. Friday was also its very first day to reach $20 since late in February. Huntsman would have to rally another 23% to hit its 52-week high of $24.90 after having been up at close to $35 at the start of 2018.
The consensus price target is only $19.61, and that is down from a consensus target of $24.00 earlier in the year. The chemicals company has a market cap of $4.5 billion, and its four units are Polyurethanes, Performance Products, Advanced Materials and Textile Effects.
Nucor Corp. (NYSE: NUE) is a leader in steel, from mills to basic and advanced product uses to raw materials, with close to a $14 billion market cap. After nearly a 3% gain on Friday to $45.90, its stock price had risen 63% from its closing low of $28.08 on March 23. Its stock also would have to rise another 28% before it attacks its 52-week high of $58.70. Nucor’s prior peak was closer to $69 at the start of 2018.
The consensus price target is currently only $43.56, and most of the post-recession analyst calls have taken the price targets down rather than up. With how low the targets went around stock prices and some of the positive ratings maintained, some investors will be looking for analysts to raise their targets ahead.