The suspense is over, and now we all know: COVID-19 has hit the markets like a ton of bricks. After a 8% drop in the last week of February, and enormous volatility to start the month of March, the S&P 500 is down 15% year-to-date.
The sudden collapse in stocks comes as oil prices are also plummeting. The sudden fall in oil is hitting energy companies – oil drillers, refiners, and midstreamers – particularly hard, at a time when the sector had already been dealing with low prices. Yesterday was the worst day for oil prices since 1991.
While the coronavirus is getting the attention, the immediate cause of the oil collapse was a sudden price war between Russia and Saudi Arabia. Both producers were reeling from the virus’s general impact on the markets, and consequent poor demand for oil; Saudi Arabia led OPEC in a move to cut back output and provide price support, but Russia refused to cooperate and tried to move in on Saudi market share. The Saudis responded by slashing prices – and then the bottom fell out. And now there’s a smell of panic on the trading floors, for both commodities and stocks.
But just because the markets sliding hard into correction territory doesn’t mean that there aren’t compelling stock buys out there. After all, the adage is, ‘Buy low, sell high.’ Prices are low right now. We’ve pulled three stocks from the TipRanks database that Wall Street’s analysts are recommending for investors. All have received ratings upgrades, and show upwards of 35% growth potential in the coming months. Let’s take a closer look.
Cars.com, Inc. (CARS)
Our first stock is a proven survivor – Cars.com was founded back in 1998, and survived the crash of the original dot.com bubble. Today, the company is worth nearly $450 million and is the internet’s second-largest automotive classified ad section.
Cars had a rough year in 2019. The stock cratered after a dismal Q2 report, but had begun to recover by year’s end, supported by forecast-beating earnings in both Q3 and Q4. The Q4 results were especially strong, with EPS coming in at 60 cents, 114% higher than expectations. Unfortunately, the coronavirus crash brought the 2H19 momentum to an end, erasing the gains the stock had made.
Nevertheless, Cars.com has strengths to recommend it for the long haul. BTIG analyst Marvin Fong points them out, writing, “We believe Cars.com is in the midst of a turnaround that appears to be gaining measured traction and valuation is overly punitive. We expect CARS will deliver significant margin improvement in the back-half of 2020 as one-time costs roll-off and new products begin generating more meaningful revenue… We believe even if the economy experiences a significant downturn, valuation is attractive.”
Fong puts a $10 price target on Cars.com, implying a 12-month upside potential of 53%. In line with this, he has upgraded his rating from Neutral to Buy. (To watch Fong’s track record, click here)
Overall, CARS shares have 6 Buys and 1 Hold, making the analyst consensus rating a Strong Buy. Shares are deeply discounted, at $6.47, and the average price target of $12.29 suggests a robust upside potential of 90% (See Cars.com’s stock analysis at TipRanks)
Logitech International (LOGI)
Swiss-based Logitech is a major manufacturer and distributor of home computer and mobile peripheral hardware. The company’s products include keyboards and mouse pointers, webcams, microphones and headsets, and more.
Logitech entered calendar year 2020 after a solid fiscal Q3. EPS beat the forecast, coming in at 78 cents compared to 77 expected. At $903 million, revenues edged over the estimates and were up 4% year-over-year. And better yet, LOGI finished 2019 with $656 million cash on hand, up 14% yoy, and with $181 million in quarterly operating cash flow, up 70% sequentially.
Strong performance in an adverse market environment will always attract attention, and Wedbush’s Michael Pachter was drawn to Logitech. He sees room here for a 25% upside, as indicated by his $48 price target, and bumped his rating from Neutral to Buy.
Supporting his bullishness on LOGI, Pachter writes, “We expect Logitech’s global portfolio of mature businesses coupled with compelling growth stories to not only weather the current market disruption, but thrive within the uncertain environment. We think Logitech’s ability to expand operating margin while mitigating the impact of China tariffs and supply chain disruption underscores management’s agility. Furthermore, we think Logitech is well-positioned to benefit from a shifting culture amid health concerns globally.” (To watch Pachter’s track record, click here.)
Logitech’s Moderate Buy consensus rating is based on 5 Buys, 2 Holds, and 1 Sell assigned to the stock in recent weeks. The average price target, $51.03, suggests room for 36% upside potential. (See Logitech stock analysis on TipRanks)
Phillips 66 (PSX)
Last on our list is a mainstay of the energy industry. Phillips 66 is the modern descendant of the Phillips Petroleum Company, founded in 1927. The modern company is a major producer of natural gas liquids and petrochemicals. Phillips brings in over $120 billion in annual revenues – at least, before the current oil-driven hit to the stock markets.
Fortunately for Phillips, the company was performing adequately before the market downturn. In Q4, earnings edged over the estimates and reached $1.54 per share. Quarterly revenues beat the forecast by 8.5%, coming in at $29.6 billion. Both numbers were down year-over-year; the low prices that have plagued the energy industry in recent months (even before today’s debacle) have been the main headwind here.
The company has used its positive earnings to keep up its dividend payments. PSX paid out a 90-cent dividend in February, making the annualized payment $3.60 per share for a yield of 5.8%. That yield is almost triple the average dividend yield among energy stocks – and almost 6x the yield of Treasury bonds. Phillips has an 8-history of maintaining and growing its dividend payments.
Manav Gupta, reviewing the energy sector for Credit Suisse, is impressed by PSX’s dividend – and its firm position in its field. He upgraded his outlook from Neutral to Buy, and gave the stock a $100 price target, showing his confidence in a 61% upside potential.
In his note on energy stocks, Gupta wrote of Phillips, “PSX, with the most diversified earnings stream, we believe is among the best positioned refiners to weather the current macro volatility. We expect an 8-10% dividend hike in 2Q 2020... In the last five years, PSXP has outperformed MPLX by 47%, as the market views PSX’s midstream business model as superior.” (To watch Gupta’s track record, click here.)
PSX shares get a Moderate Buy from the analyst consensus, based on 6 Buys against 3 Holds. Shares are currently selling for $62.09, and the average price target of $111.88 indicates a robust 80% upside potential. (See Phillips stock analysis on TipRanks)