With global markets reeling from the COVID-19 outbreak, investors are looking for safe haven stocks to weather the storm. Given much of America is on lockdown and the economy has slowed to a crawl, almost all companies are feeling the squeeze.
In difficult times like these, investors take comfort in owning stocks that have long track records of capital appreciation. The CFRA analyst team maintains a list of high-quality capital appreciation stocks that have above-average 10-year earnings, plus dividend growth and relatively stable cash flows.
Here are nine capital appreciation stocks to buy, according to CFRA.
Atmos Energy Corp.
Atmos Energy (ATO) is a Texas-based natural gas transmission and distribution company. Analyst Paige Meyer says Atmos is positioned in a defensive business within a struggling energy sector, and its earnings growth will likely outpace its peers in coming years. Atmos pays a 2.4% dividend, and Meyer says its payout ratio of less than 50% suggests there is plenty of room for dividend growth ahead. Atmos has a rate increase request pending in Kansas, and CFRA is projecting 12% revenue growth in fiscal 2020. CFRA has a “strong buy” rating and $132 price target for ATO stock.
Comcast (CMCSA) is the largest U.S. cable services provider and has more than 53 million subscribers. Comcast’s movie production business and Universal Studios theme parks have been impacted by the COVID-19 outbreak, but its cable business should be relatively insulated ahead of the launch of its Peacock streaming service later this year. Analyst Tuna Amobi says Comcast has several near-term revenue catalysts, including bundled residential high-speed data and wireless subscription growth, business services, content licensing, and Sky network asset integration and subscriber growth. CFRA has a “strong buy” rating and $54 price target for CMCSA stock.
CVS Health Corp.
CVS (CVS) is one of the most vertically integrated public health care companies in the world. Analyst Kevin Huang says he expects CVS’ business to follow the trajectory competitor Walgreens Boots Alliance (WBA) recently described in its earnings call. Walgreens said it experienced a large boost in store sales at the end of the first quarter related to COVID-19 but significantly lowered its guidance for the second quarter. Huang says stay-at-home measures are simply a short-term shock for CVS and do not change his bullish long-term outlook. CFRA has a “strong buy” rating and $77 price target for CVS stock.
Dollar General Corp.
Dollar General (DG) is the largest American dollar store chain. Analyst Camilla Yanushevsky says there are plenty of reasons to believe Dollar General will outperform its retail peers during the COVID-19 downturn. Dollar General reported 3.9% same-store sales growth in 2019, its best full-year growth rate in seven years. The company plans to open an additional 1,000 stores in fiscal 2021 while other retailers are reducing their store footprints. Finally, private label brands, foreign sourcing and nonconsumable offerings should boost margins, Yanushevsky says. CFRA has a “strong buy” rating and $185 price target for DG stock.
Northrop Grumman Corp.
Northrop Grumman (NOC) is one of the world's largest defense companies. Analyst Colin Scarola says Northrop’s 16.3% decline in the past three months is ridiculous given 85% of its revenue comes from U.S. Department of Defense contracts that are insulated from coronavirus impacts. Scarla says the stock is trading at a significant discount to its historical forward earnings multiple. In the final quarter of 2019, Northrop reported 21% backlog growth, and the company has no major contracts expiring in 2020. CFRA has a “strong buy” rating and $450 price target for NOC stock.
BlackRock (BLK) manages more than $6 trillion in assets, making it the largest asset manager in the world. Analyst Cathy Seifert says BlackRock’s 7% organic assets under management growth and 24% technology revenue growth in 2019 demonstrate the company’s positive momentum prior to COVID-19 disruption, and the stock is now trading at a significant discount to its historical valuation. At the same time, the stock’s dividend has grown to 3.4%, and Seifert says BlackRock has one of the most durable business models within the asset manager group. CFRA has a “buy” rating and $587 price target for BLK stock.
Gentex (GNTX) produces dimmer mirrors, rear camera displays and other visioning technology for the global auto industry. COVID-19 has hit the auto industry hard, but analyst Garrett Nelson says Gentex has the best gross margins in the auto supplier group, has no debt on its balance sheet and has a long history of sizable dividends and share buybacks. Nelson says greater content per vehicle and a larger presence in Asia should help Gentex revenue growth outpace global auto production growth. He says Gentex stock is the gold standard of auto suppliers. CFRA has a “buy” rating and $35 price target for GNTX.
IBM (IBM) shares have been a major market laggard for more than a decade and are down 17% overall in the past 10 years. However, analyst David Holt says investors shouldn’t confuse slow progress with no progress in IBM’s transition into cloud environments. IBM’s revenue was down 3% overall in 2019, but Holt says this revenue loss was almost entirely from asset divestments and foreign exchange headwinds. IBM shares have a 6% dividend yield, and Holt is projecting $13.5 billion in free cash flow in 2021. CFRA has a “buy” rating and $165 price target for IBM stock.
Walt Disney Co.
Disney’s (DIS) movie production business, its theme parks and its cruise lines have all gotten clobbered by COVID-19. However, the brand new Disney Plus streaming service may be one of the biggest winners from the world being stuck at home. Investors could see a huge coronavirus jump in Disney Plus subscriptions in the first half of 2020, putting the service’s long-term growth trajectory ahead of schedule. Amobi says new CEO Robert Chapek brings plenty of experience to the position after nearly 30 years at Disney. CFRA has a “buy” rating and $160 price target for DIS stock.