5 COVID-19 Casualty Stocks to Buy With Big-Time Upside Potential

Investing

Published: May 15, 2020 7:32 am

The selling has returned to the markets. While we got a reprieve on Thursday, the legions of new millennial investors are getting a taste of what happens after a market “melt-up” rolls over and reality sets back in. The stock market by all measurements is expensive, with the S&P 500 trading at a stunning 20.4 times forward earnings, which is a 1.5 standard deviation above the long-term average of 15.4. This level is now three-quarters of the way to the tech bubble high in 1999 and 2000.

[in-text-ad]

With the market very rich, and the coronavirus pandemic still a long way from being over, we decided to sift through the companies that have been absolutely eviscerated as a result of the demolition of the economy and everything related, like travel, lodging, discretionary purchasing, gaming and so much more.

Five companies with stocks to buy at BofA Securities hit our screens and look like great ideas for long-term growth investors with a somewhat higher degree of risk tolerance. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Chevron

This integrated leader is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas.

Chevron, which is among the companies with the largest corporate debt, recently became the latest major oil company to slash spending after halting its $5 billion-a-year share buyback and halving spending in the Permian Basin, which means a large decrease in projected output from America’s biggest shale region.

The California-based oil giant has said that it would lower projected 2020 capital spending by 20%, or $4 billion. The Permian will account for the largest single element of that reduction, translating into 125,000 fewer barrels of oil equivalent per day than previously forecast, a quantity equal to about 2.5% of the basin’s total current production.

Shareholders receive a hefty 5.73% dividend, which the analysts feel comfortable will remain at current levels. The BofA Securities price target is $97, and the Wall Street consensus target is $90.71. Chevron stock ended Thursday’s trading at $90.05 a share.

Darden Restaurants

With phase one opening procedures in place, the restaurant industry is close to leaving the horror of being totally shut down except for carryout and delivery. Darden Restaurants Inc. (NYSE: DRI) owns and operates full-service restaurants in the United States and Canada.

As of November 24, 2019, the company owned and operated approximately 1,799 restaurants, which included 867 under the Olive Garden, 518 under the LongHorn Steakhouse, 166 under the Cheddar’s Scratch Kitchen, 79 under the Yard House, 59 under The Capital Grille, 45 under the Seasons 52, 42 under the Bahama Breeze and 23 under the Eddie V’s Prime Seafood brands.

The company reinforced the balance sheet last month, and the analyst said this at the time:

Darden completed a $460 million equity raise ($400 million common, $60 million green shoe) to strengthen its balance sheet. The raise highlights Darden’s growing cost of capital advantage to peers given years of a more conservatively run balance sheet. Despite the 6% dilution, we think Darden’s war chest will help it muscle out peers post-Covid-19.

The dividend has been suspended for now, and BofA Securities has a $75 price target. The consensus price objective is $74.44. Darden stock closed most recently at $66.66.

GM

This venerable car company could benefit from an improving economy and the return to work. General Motors Co. (NYSE: GM) is the world’s largest automaker, with annual volume of almost 10 million units. The company reports its operations in four regions, North America, Europe, South America, and International. The company now relies on only four core brands in its key North American segment (Chevrolet, GMC, Buick and Cadillac).