The effect of the coronavirus on the global economy has seen the markets suffer their worst week since the financial crisis. The fallout is being felt across the board, from the markets to travel to supply chain disruptions.
Gabriela Santos, global market strategist at JPMorgan Asset Management, believes that the Coronavirus outbreak won’t have a lasting impact on the markets, and said in a note, “What tends to happen is that the market bottoms when the cases plateau […] Perhaps it’s a buying opportunity.”
Indeed, in a market gripped by turmoil, there are always compelling plays for the canny investor. With help from the TipRanks Stock Screener tool, we’ve identified three equities rated highly by JPMorgan — and enjoying strong support elsewhere on Wall Street as well. Let’s get to know them, beginning with…
Cinemark Holdings Inc (CNK)
Let’s start off with a trip to the movies at American movie theater chain Cinemark Holdings. This company operates across the Americas and Taiwan, and with a 30% market share, is the largest movie theatre chain in Brazil. Despite the exuberance of the overall market in 2019, Cinemark performed averagely, shedding 4.4% of its value along the way. 2020 has continued the slide; Cinemark stock is down by 27% year-to-date.
The company’s recent earnings results haven’t helped matters, either. The company missed both on revenue and EPS; the former coming in at $788.8 million, down year-over-year by 1.2% and missing the estimate by $11.07 million. The latter came in at $0.22 exhibiting a miss of $0.21. Investors saw the print and decided this was one movie they didn’t like, headed to the exit doors and instigated a sell-off.
While the empty seats might be a put off for some, J.P. Morgan’s Alexia S. Quadrani sees the projector flickering brightly and argues the “weakness creates a great entry point.”
The 4-star analyst noted, “Looking specifically at the quarter, US admissions again outperformed the industry, at -1.3% y/y vs. the industry at -2.1%… While upside to shares may be limited in the first half of 2020 before we see better box office growth, with another increase to the dividend now yielding ~5% and ongoing execution in the US (CNK has outperformed the industry 39 out of the last 44 quarters), we view the sell off as overdone and view this price as an attractive entry point.”
Quadrani, then, keeps her Overweight rating intact. The print letdown, though, sees a slight reduction to the price target, down from $40 to $39. Nonetheless, the new figure implies plenty of upside – 58%, as it happens. (To watch Quadrani’s track record, click here)
Are the analysts queuing in the Street to get into the latest Cinemark show? Apparently so. 7 Buys and and 2 Holds add up to a Strong Buy consensus rating. With an average price of $37, the potential upside comes in at 50%. (See Cinemark stock analysis on TipRanks)
Concho Resources Inc. (CXO)
Out of the glam of the movie theater and into the glop of the oil field, where we encounter Concho Resources. The Permian Basin-focused energy company is down nearly 20% year-to date. According to J.P. Morgan’s Arun Jayaram, though, that is about to change.
Concho’s focus has been on reducing costs so that free cash flow can be generated from lower oil prices. The plan appears to be working, as the evidence in its latest quarterly report can attest.
During the quarter, the company produced 215,000 barrels of oil per day, coming in above the high-end of its guidance. The figure was also 8% above the prior year’s level and helped push to an overall increase of 25% for the full year compared to 2018’s numbers. Additionally, EPS of $1.03 beat analysts’ expectations by $0.80 per share.
Jayaram thinks a combination of significant 4Q19 oil, cash flow, and FCF beats as well as a more capital efficient 2020 guide “should carry the day.”
The analyst said, “Following an important reset that occurred following the 2Q19 print, we think the company is now poised to deliver value creation to shareholders through the combination of efficient growth and increasing cash return to shareholders […] We expect the 2020 program to be strong from a capital efficiency standpoint given the planned up-spacing of wells and decreases in completed well costs.”
As a result, Jayaram reiterated his Overweight rating on CXO along with a price target of $118. Investors, therefore, could be pocketing a handsome 70% gain, should the thesis play out. (To watch Jayaram’s track record, click here)
The Street concurs. Concho’s Strong Buy consensus rating breaks down into 12 Buys, and 4 Holds. The upside potential comes in at 50%, should the average price target of $104.13 be met over the next 12 months. (See Concho stock analysis on TipRanks)
Commscope Holding (COMM)
Completing JP Morgan’s trio of picks is telecommunications supplier CommScope. This multinational company has customers in over 130 countries and 20,000 employees worldwide.
Like the previous two names on our list, COMM’s fortunes in the market have been trending south. 2019’s share price drop of 11.5% has been followed by an additional 24% in 2020, so far.
Despite the drop, CommScopes’s recent earnings report was a strong one. Revenue of $2.3 billion exhibited year-over-year growth of 117% and beat the estimate’s call by $20 million. Q4 Non-GAAP EPS of $0.46 beat the consensus by $0.12.
CommScope, though, is one of a growing number of companies affected by the coronavirus. The company’s raw materials and products are sourced directly from China and supply chain disruption means Q1 2020 EBITDA guidance has been affected to the tune of roughly $60 million.
While acknowledging the impact the coronavirus will have on EBITDA growth and additional headwinds in the shape of moderating spend from AT&T towards FirstNet, J.P Morgan’s Samik Chatterjee is “staying patient.” The 4-star analyst notes “momentum into 2021 drives our expectation for stabilization in revenue trends.”
Chatterjee expounded, “The lack of EBITDA growth is likely to appear to investors as a push out of the earnings recovery by a year from 2020 to 2021. All that said, with the investment story for COMM shares revolving primarily around strong cash flow generation and deleveraging plans, which the company is able to execute on relatively well despite the softer spending trends, we continue to see substantial upside for the equity valuation.”
Bottom line, then? Chatterjee keeps the Overweight rating as is. The additional headwinds, though, see the price target reduced from $19 to $17. Despite the new target, the upside potential comes in at a healthy 57%. (To watch Chatterjee’s track record, click here)
Overall, Commscope has had 6 bullish analysts in its corner over the last three months, versus 3 analysts who prefer to stay on the sidelines. Importantly, the 12-month average price target of $17.13 showcases 59% in upside potential for the stock. (See CommScope price targets and analyst ratings on TipRanks)