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 and 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 the recent trading. Here we look at five companies that could excel in a much longer W-type recovery. It’s important to remember that a W-styled recovery would mean some sort of retest of the lows that we hit back in March. So basically, this is the worst-case scenario.
This leading health care stock is a pure-play on an aging nation. Amedisys Inc. (NASDAQ: AMED) provides health care services in the United States. It operates through three segments. The Home Health segment offers a range of services in the homes of individuals for the recovery of patients from surgery, chronic disability or terminal illness, as well as prevents avoidable hospital readmission through its skilled nurses; rehabilitation therapists specialized in physical, speech and occupational therapy; and social workers and aides for assisting its patients.
The Hospice segment offers services that are designed to provide comfort and support for those who are dealing with a terminal illness, including heart disease, pulmonary disease, Alzheimer’s or cancer. The Personal Care segment provides assistance for patients with the activities of daily living. As of February 18, 2020, the company owned and operated 479 care centers in 38 states and the District of Columbia.
Raymond James has set a $225 price target for the shares, while the Wall Street consensus target is $211.46. Amedisys stock closed Wednesday at $189.95.
Another health care play, this is solid stock to own, especially with hospitals and doctors ready to restart non-COVID-related procedures. Baxter International Inc. (NYSE: BAX) provides a portfolio of renal and hospital products. Its Renal segment provides products and services to treat end-stage renal disease, irreversible kidney failure and acute kidney therapies. This segment offers a comprehensive portfolio to meet the needs of patients across the treatment continuum, including technologies and therapies for peritoneal dialysis, in-center hemodialysis (HD), home HD, continuous renal replacement therapy and additional dialysis services.