Investing

5 Undervalued Defensive Stocks Not Receiving Enough Credit for a Post-Coronavirus Recovery

Dollar Tree does not pay a dividend, but the dollar store theme should be alive and well, considering the recession and the ability to “reach up” into higher-priced categories.

At $91 or so a share, Dollar Tree has a 52-week range of $60.20 to $119.71 and a consensus target price of $104.48. Its shares are still handily lower than at the start of 2018.

Essential Utilities

Essential Utilities Inc. (NYSE: WTRG) is the former Aqua America, and its acquisition of Peoples Gas in Pennsylvania was perhaps very unlucky in the timing. Now it is a water utility and a natural gas utility, and the market has had a hard time figuring out how to value it, despite the premium multiples in other water utilities.

At almost $43 a share, it has a 52-week range of $30.40 to $54.54 and a consensus target price of $48.20. It also has a 2.2% dividend yield, despite being valued at about 25 times normalized forward earnings. The $10 billion market cap also keeps this one in the “approachable” category for future mergers, now that so many other utilities dwarf it in size.

Molson Coors

In recent years, Molson Coors Beverage Co. (NYSE: TAP) has seen its shares slide and slide, and its beer-related earnings power is considered very weak. With shares now near $34, and with a 52-week range of $33.55 to $61.94, note that it was a $100 stock less than five years ago. That means much of the slide was beer-related long before the coronavirus arrived.

There is no dividend to fall back on now that it has been suspended, but the valuation is probably close to 10 times normalized earnings, a much lower level than before. With so many bars and restaurants closed, beer and alcohol sellers are having to depend on people being stuck at home.

Shares of Molson Coors reflect no price recovery at all since the March panic-selling lows, and that seems at least somewhat unfair. What share price this stock settles in at remains a mystery, but long-term investors who can look beyond the woes of 2020 can imagine the return of something close to normality, and even an ultimate return to paying a dividend.

Pfizer

Pfizer Inc. (NYSE: PFE) is about as boring as it gets in big pharma and many investors believe the wait will just be too long to bother with. A restructuring and spin-off will not be complete for another year or so, but at $33.75 a share, and with a 52-week range of $27.88 to $43.56, it seems that the bad news, or the long slow road to nowhere, may be priced in along with now offering a 4.5% dividend yield.

Pfizer’s consensus target price of $40.04 and a valuation of about 11 times normalized earnings ought to be impressive enough, but independent research firm Argus just updated its coverage in the COVID-19 fight and it sees as much as 60% upside for Pfizer.

This was a $46 stock in late 2018, and the share price is basically the same as it was before the major recovery was seen elsewhere.