By Tomi Kilgore, MarketWatch
Amazon, Peloton, Facebook and Regions Financial among those best positioned as coronavirus-related fears grow
Wedbush analysts added four stocks to its "best ideas list," as those companies are among those believed to be best positioned to weather the storm as the COVID-19 pandemic leads to changes in consumer behavior and raises the risk of a recession.
The best ideas list (BIL) consists of Wedbush's highest-rated companies in the consumer, financial, health care and technology, media and telecommunications sectors. They are chosen by analysts, then vetted by Wedbush's investment committee. Once a stock falls more than 25% relative to the S&P 500 and the Russell 2000, it is automatically booted from the list.
-- For Amazon (AMZN) , analyst Michael Pachter believes the e-commerce giant could gain "meaningful market share" across a number of marketplaces and in many countries, as consumers adjust to coronavirus-related changes made to the retail environment.
"Over the near term, consumers appear to be spending more of their time and money shopping online in order to avoid crowds, to limit the amount of time wasted searching for products that could be sold out at brick-and-mortar outlets, and, in some situations, to adhere to the rules implemented by different governmental bodies," Pachter wrote in a note to clients.
Amazon said late Monday that it planned to hire 100,000 more U.S. workers () to handle the increased e-commerce orders and deliveries as the spread of COVID-19 has kept more Americans at home. And Amazon has said that its customers should expect more "out-of-stocks" on household staples and longer delivery times, citing increased demand.
Don't miss: Amazon 'out-of-stocks' rise and deliveries taking longer due to coronavirus-related demand ().
"Although Amazon and many consumers and investors alike will be disappointed by the company's inability to effectively shoulder the increased burden related to coronavirus fears, we view the unexpected surge in demand as a high-class problem for the company that makes its Q1:20 guidance, which was provided before coronavirus had started to noticeably impact the West, seem like a relic of a different time in history," Pachter wrote.
He rates Amazon buy with a $2,325 stock price target. The stock has lost 15% over the past month, while the S&P 500 index has declined 25%.
-- Pachter also added Facebook(FB) to the list, as the social media giant has witnessed a "significant" uptick in user engagement and impressions growth across a number of its properties as a result of COVID-19 fears.
"Given the seemingly unprecedented and unrelenting volume of news related to the global pandemic, the reliance that a large percentage of the world's population has on Facebook as its primary source of information, and an increasingly pervasive stay-at-home attitude accentuated in some instances by the government, we believe that many Facebook users have been accessing its properties at meaningfully elevated levels over the last several weeks," Pachter wrote.
He rates Facebook outperform with a $250 stock price target. The stock has shed 30% over the past month.
Also read: Facebook offers financial aid to employees and small businesses ().
He expects the recent positive momentum to continue at least through the rest of the first quarter in many of Facebook's important geographic regions. As a result, Pachter believes first-quarter revenue growth guidance provided by the company and consensus Wall Street expectations for the year are "overly conservative."
In late January, the company said it expected first-quarter revenue growth to decelerate from fourth-quarter growth by a "low- to mid-single digit" percentage range.
-- Peloton(PTON) was added to the list by analyst James Hardiman, who said he believes the exercise equipment company will benefit from the "work-in" trend, that is still in the very early stages. And as governors of a number of states have recently ordered the temporary closure of gyms and fitness clubs, Hardiman said that trend could accelerate. Read more about San Francisco's 'shelter-in-place' order () and closure of 'nonessential' businesses ( ) in other states.
"[N]ot only is [Peloton] arguably the company in our coverage best insulated from the current coronavirus pandemic, but increasingly we see PTON as a potential beneficiary of widespread social distancing efforts, accelerating what we believe is already an inevitable shift," Hardiman wrote.
While state-mandated lockdowns could hurt deliveries of Peloton's products, and although a recession could damp demand for the company's premium-priced products, Hardiman said his research indicates "recessionary churn" could prove to be relatively low given surveys showing a willingness of Peloton members to cut back on other subscriptions before canceling their Peloton memberships.
He has an outperform rating on Peloton and a stock price target of $35. The shares have eased 8% over the past month.
-- For Regions Financial(RF) , analyst Peter Winter said he believes the regional bank is best positioned to weather the historically low interest rate environment given its hedging strategy.
Fears of the economic impact of the COVID-19 outbreak has prompted the Federal Reserve to slash the target range for the benchmark overnight rate falling to zero to 0.25%, which sent yields on longer-term Treasurys to record lows.
See: The Fed just declared its own national emergency as it aims to shield the economy form the coronavirus ().
Winter said given that the company had added $23 billion to its interest-rate hedges, the Fed's rate cut shouldn't impact Regions' near-term net-interest margin outlook.
"However, there will be some pressure in the second half of the year if the 10-year stays below 1%, but they've been adding hedges to mitigate some of the downside and the pressure should be less than peers," Winter wrote.
He said the bank has also done "a tremendous amount of work" to de-risk its loan portfolio, which leaves it well positioned to weather the next economic downturn.
"Post the financial crisis, RF is subject to the Federal Reserve's annual stress tests and every year it comes out "well capitalized" indicating that the dividend should be safe even in an extreme downturn," Winter wrote. "RF announced it is joining other banks in suspending its share repurchase program through the end of 2Q20 to ensure it can use its strong capital levels and liquidity to support its customers."
Regions is rated outperform with a $14 stock price target. The stock has tumbled 46% over the past month, while SPDR S&P Regional Banking exchange-traded fund(KRE) has dropped 38%.
Other companies added to Wedbush's BIL over the past week were AutoZone Inc.(AZO) , Global Payments Inc.(GPN) and Masonite International Corp.(DOOR)
The other companies on the BIL are:
-- Ares Capital Corp.(ARCC)
-- Activision Blizzard Inc.(ATVI)
-- Salesforce.com Inc.(CRM)
-- Fidelity National Information Services Inc.(FIS)
-- Fifth Third Bancorp(FITB)
-- Microsoft Corp.(MSFT)
-- Pegasystems Inc.(PEGA)
-- PayPal Holdings Inc.(PYPL)
-- Splunk Inc.(SPLK)
-- Toll Brothers Inc.(TOL)
-- Tempur Sealy International Inc.(TPX)
-- Uber Technologies Inc.(UBER)
-- Western Alliance Bancorp(WAL)
-- Wix.com Ltd.(WIX)
-- Zynga Inc.(ZNGA)
-Tomi Kilgore; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
March 17, 2020 16:08 ET (20:08 GMT)
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