Investing

5 Blue Chip Stocks in Wall Street's Penalty Box Have Massive Upside Potential

Norwegian Cruise Line

This stock has sold off over the coronavirus concerns, as a competitor’s ship is still quarantined. Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) is the world’s third-largest cruise company, and it owns and operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.

The company acquired Prestige Cruise Holdings, the parent company for Oceania and Regent Seven Seas Cruises, in 2014 to diversify into the premium and luxury segments of the market and expand its global footprint. Today, Norwegian has 25 ships across all three brands and offers itineraries to more than 510 destinations.

The company said recently that it could face a per-share earnings impact of 55 to 65 cents in fiscal 2020 if all operations are suspended in Asia through the end of April. While that has not come to pass and may be averted, the cruise line said there will be a material impact on the business due to suspended cruises in Chinese ports, cancellations in other parts of Asia and the impact on bookings, which the company said is determined by the length of time that an event influences travel.

Merrill Lynch remains positive on the company and recently noted its strong fundamentals should remain in place long after the coronavirus issues have faded from the headlines. Their $66 price objective is in line with $66.50 the consensus target. The shares were last seen trading at $53.43.

United Airlines

This company has found a way to shoot itself in the foot constantly over the years, but the issue this time is all the company’s routes into Asia. United Airlines Holdings Inc. (NYSE: UAL) is the holding company for United Airlines and United Express, which operate an average of 5,055 flights a day to 373 airports across six continents.

United’s key U.S. hubs include Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco and Washington, D.C. The airline is a founding member of Star Alliance, which provides service to 193 countries via 27 member airlines.

In late January, United canceled 24 round-trip flights to Hong Kong, Beijing and Shanghai, citing a lack of customer demand due to coronavirus. Of all U.S. carriers, the company has some of the highest exposure to China and the Asia-Pacific region. Wall Street fears that would put a big dent in earnings.

Merrill Lynch remains positive on the long-term outlook and has set a $100 price target. The consensus target is higher at $109.59, and United Airlines stock ended Thursday at $80.99 a share.

Wynn Resorts

This top company’s issues stem from some of its top properties being located in China. Wynn Resorts Ltd. (NASDAQ: WYNN) operates Wynn Macau and Encore at Wynn Macau resort located in the People’s Republic of China.

The Macau resorts feature approximately 284,000 square feet of casino space, which offers 24-hour gaming and a range of games, with 458 table games and 708 slot machines, private gaming salons, sky casinos and a poker room. Its two luxury hotel towers have a total of 1,008 guest rooms and suites, as well as casual and fine dining in eight restaurants, about 57,000 square feet of retail shopping in stores and boutiques, around 31,000 square feet of space for lounges and meeting facilities, and the Rotunda show. Recreation and leisure facilities include two health clubs, spas, a salon and a pool.

The company also owns and operates the Wynn Las Vegas and Encore at Wynn Las Vegas resorts, with a total of 4,748 hotel rooms, suites, and villas; 232 table games; 1,866 slot machines; a race and sportsbook and poker room in approximately 186,000 square feet of casino gaming space, including a sky casino and private gaming salons.

One huge issue that has had Wall Street backing away is that Wynn has among the highest China exposure, as the company derived about 75% of total revenue from Macau over the past 12 months, according to estimates based on FactSet’s proprietary algorithm. With casinos in Macau being closed for two weeks, there will be some short-term earnings damage.

Shareholders receive a 3% dividend. The Deutsche Bank price target is $155. The consensus target is $148.94, and Wynn Resorts stock was last seen at $133.62 per share.

Longtime stock investors know that often analysts, strategists and financial talking head pundits can’t see the proverbial forest for the trees. There is no doubt the coronavirus will cause near-term damage for some of these stocks. The reality is that, like the SARS epidemic in 2003, it will sooner or later fade from the front pages and TV screens of the world. All these companies suffering a direct impact now eventually will return to form, and that’s why now is the time to add some shares.

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