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.
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.
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.
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.
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