Given the uncertainty in the market and economy these days, it’s hard for investors to know where to turn to find value. Traditional value stocks have underperformed since the financial crisis, but they also have historically provided downside protection for investors during times of market turmoil. CFRA maintains an intrinsic value portfolio that incorporates free cash flow, profit margin, retained earnings and liquidity. In theory, the stocks in the portfolio have intrinsic value that remains relatively stable for long-term investors even when their stock prices fluctuate in the near term. Here are seven of CFRA’s intrinsic value stocks to buy.
Analyst Garrett Nelson says Coca-Cola (KO) shares are attractive in uncertain times given their low volatility. Coca-Cola’s stable, diversified earnings and its strong balance sheet help to ease investors’ fears. Nelson says Coca-Cola’s domestic business is a cash cow, while its emerging markets business is a significant growth source. Legendary Wall Street investor and Berkshire Hathaway (BRK/B) CEO Warren Buffett is among those that see value in Coca-Cola. Buffett first invested in Coca-Cola back in 1987 and hasn’t sold a single share since. CFRA has a “strong buy” rating and $60 price target for KO stock.
Google parent company Alphabet (GOOGL) is not completely immune to short-term economic disruptions, but its key businesses of online search, streaming video, cloud services and online advertising should see relatively little disruption during the economic lockdown. In the longer term, analyst John Freeman is projecting three-year annual revenue growth of 17% and upside to profitability and operating leverage. In addition, with Alphabet shares down 6.1% year-to-date, Freeman says the stock is trading below its five-year averages on most key valuation metrics. CFRA has a “strong buy” rating and $1,761 price target for GOOGL stock.
Merck & Co.
Analyst Sel Hardy says Merck (MRK) investors should expect the slowdown to negatively impact the company’s numbers through at least the first three quarters of 2020. The first-quarter impact came mainly in China, where Merck’s pharmaceutical and vaccine businesses have been strong growth drivers. Still, China represented only 7% of total revenue in 2019 compared with the U.S. at 43%. In the longer term, Hardy says demand for oncology drug Keytruda should remain robust, and Merck will not be losing exclusivity on any key brands until 2022. CFRA has a “strong buy” rating and $92 price target for MRK stock.
Electronic Arts (EA) is one of the largest independent video game publishers and owner of franchises such as Madden and FIFA. With many people around the world stuck at home and major sports and other events canceled, video games have been one of the few safe forms of entertainment during the economic shutdown. Freeman says video game sales are likely insulated from illness disruption, and the next-generation PlayStation 5 and Xbox 2 gaming consoles scheduled for release this holiday season should be bullish catalysts for the entire industry. CFRA has a “strong buy” rating and $127 price target for EA stock.
Zoetis (ZTS) is a global leader in animal medicines and vaccines sold to both veterinarians and the agriculture industry. The pet care business has historically been recession-proof, and Hardy recently cut his 2020 earnings per share estimate by just 2.7%. Zoetis’ pet care business has been a strong grower and represented half of the company’s overall revenue in 2019. Hardy says the company should maintain pricing power given the high barrier to entry for generic competitors, and emerging markets should generate tremendous growth in the long term. CFRA has a “strong buy” rating and $143 price target for ZTS stock.
Johnson & Johnson
Johnson & Johnson (JNJ) has a pristine balance sheet, strong cash flow and a diversified portfolio of defensive consumer staple products. It also pays a 2.5% dividend. In fact, Johnson & Johnson is one of the few stocks that is actually positive for the year, up more than 1% overall. Hardy says panic stockpiling of drugs like Tylenol, Motrin and Zyrtec helped drive sales growth in the first quarter, and drug sales will likely continue to offset declines in the medical device segment due to postponed procedures. CFRA has a “buy” rating and $160 price target for JNJ stock.
Thanks to social distancing, Facebook (FB) users are relying on social media more than ever to communicate with friends and family and stay connected. Facebook’s advertising business should benefit directly from a surge of user engagement during the lockdown period. Freeman is projecting 20% compound annual revenue growth over the next three years and says core Facebook, Messenger, Instagram and WhatsApp platforms should remain dominant in their respective genres and benefit from a $700 billion secular shift in global advertising from offline to online. CFRA has a “buy” rating and $233 price target for FB stock.
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