The market is currently in serious correction mode, with all major indexes posting heavy losses over the past month. The sensational run up of the last decade has been brought to a shuddering halt by the coronavirus outbreak. Market watchers had been expecting a correction to come at some point, although no one could have predicted what the catalyst would be or the brutal force of its impact.
In response, the global economy is likely to slow down. According to Bank of America, GDP worldwide is expected to slow down to 2.8% this year, which the bank says will be the first sub-3% showing since the end of the recession and financial crisis in mid-2009.
In times like these, investors often turn to defensive stocks. These names have a reliable steady income and sustainable business models which are able to cushion the blows, making them less likely in the long-term to be affected by the wild swings of the market.
With this in mind, we used TipRanks’ Stock Screener tool to pinpoint 3 stocks for a defensively minded portfolio. While all have been affected by the outbreak, in the long-term, all 3 boast the credentials to weather the storm, according to the analysts. Additionally, on further inspection, we noticed all currently earn a “Strong Buy” consensus rating from the Street.
Humana Inc. (HUM)
Humana is one of the premier providers of health insurance in the US, with the company enrolling over 6 million members in its Medicare Advantage plans. Following a strong performance in 2019, which saw a 32% increase to the share price, Humana stock’s year-to-date gain is modest at 0.14%. Is the recent pullback an opportunity for investors?
Based on the numbers, this might in fact be the case. The company consistently beat EPS estimates in CY19, a trend that has continued so far in 2020. Like in the previous report, the company’s recent 4Q19 results featured beats on both the top and bottom line.
Q4 revenue came in at $16.3 billion, topping the analysts’ estimate of $16.19 billion. The figure also landed 15% higher than the $14.2 billion reported in the same quarter of the previous year. Non-GAAP net income in Q4 was $2.28 per share. Although below the $2.65 per share posted in the same quarter of 2018, it still was well ahead of the Street’s call for $2.20 per share.
Mizuho Securities’ Ann Hynes recently attended an investor meeting with the company’s management. Among the key takeaways for the 4-star analyst were Humana’s leading market position in Medicare Advantage, growth and margin expansion potential in Medicare Advantage and potential market share gains in Medicaid. Hynes also highlights Humana’s diversification in healthcare services and potential for cost savings.
Taking all of this into account, Hynes reiterated a Buy rating on Humana along with a $405 price target. The analyst, therefore, expects HUM’s share price to increase by 10% over the next 12 months. (To watch Hynes’ track record, click here)
The consensus breakdown reveals a similar outlook. Humana’s Strong Buy consensus rating breaks down into 15 Buys and 4 Holds. With an average price target of $413.32, the analysts foresee an addition of 13% to Humana stock in the months ahead. (See Humana stock analysis on TipRanks)
Walt Disney (DIS)
Shares of Disney have been hit particularly hard since the turn of the year. Disney stock is down by 20% year-to-date, and the share price is currently at its lowest point since April last year.
While the coronavirus’ disruption to global supply chains is causing companies to consider the impact the virus could have on future business, Disney is already feeling its force. The company’s theme parks in Hong Kong and Shanghai have been closed for over a month, while fears of the virus spreading further are likely to impact the numbers for its US counterparts. Disney has already said it expects to take a $175 million hit in the present quarter. It’s worth bearing in mind, though, that Disney is a massive corporation with a diverse business model. The list includes TV networks, movie studios and the newly launched streaming service Disney+. The $175 million could be seen as relatively small fry, given total operating income in FQ1 2020 came in at $4 billion.
Disney also recently surprised investors with the unexpected announcement that Bob Iger will be stepping down as CEO. Iger was expected to step away when his contract ends in 2021 and will now remain as executive chairman until then. Bob Chapek, previously in charge of the company’s theme parks arm, will take over as CEO.
Chapek’s promotion resonates well with Merrill Lynch’s Jessica Reif Cohen. “Mr. Chapek brings unmatched internal leadership experience spanning a large portion of the company during three transformational decades — including stewardship of DIS’ complex, consumer-facing and widely successful global theme park business… Additionally, we believe DIS shareholders will continue to benefit from Mr. Iger’s leadership and creative strategy through the end of 2021,” the analyst said.
Cohen, therefore, reiterated a Buy rating on Disney along with a $168 price target. The figure implies upside potential of 46%. (To watch Cohen’s track record, click here)
Disney’s Strong Buy consensus rating breaks down into 14 Buys and 4 Holds. Investors could be looking at a 38% gain, should the average price target of $158.87 be met over the next 12 months. (See Disney stock analysis on TipRanks)
CVS Health Corporation (CVS)
With over 20,000 stores across the country, CVS is the largest pharmacy chain in the US. The healthcare company hasn’t been spared during the latest sell-off in the market either; CVS stock is down by 14% in 2020.
The sell-off though, doesn’t paint the whole picture. CVS made some solid gains over the last twelve months, mostly down to its purchase of Aetna at the end of 2018, for almost $70 billion.
Following the acquisition, investors were concerned the purchase might weigh heavily on the balance sheet. As with the company’s previous report, the latest statement put worried investors at ease.
In Q4, CVS brought in sales of almost $67 million, beating the Street’s call for $63.97. Non-GAAP EPS of $1.73 surpassed the estimate by $0.04. Additionally, the company’s operating income increased to just under $4 billion, exhibiting growth of 1.3%, mostly a result of the merger’s impact.
Deutsche Bank’s George Hill cites CVS as one of the investment firm’s favorite investment ideas. Hill believes the company is on its way to “delivering against its vision of a vertically integrated healthcare services company with outsized consumer engagement.” The 4-star analyst expounded, “Strength in 2020 is expected to be powered by the PBM (pharmacy benefit management) segment and improved sales results since the Q3 call. Expectations for the retail and benefits segments were unchanged vs prior communication, and we believe underlying reimbursement pressure in both the pharmacy and PBM business are relatively steady. We view CVS as soundly executing against its strategy and delivering results to the bottom line.”
To this end, Hill reiterated his Buy rating on CVS in addition to bumping up the price target from $97 to $109. This conveys his confidence in the stock’s ability to surge 70% in the year ahead. (To watch Hill’s track record, click here)
Out on the Street, the analysts are on the same page as Hill. 9 Buys and 2 Holds add up to a Strong Buy consensus rating. At $89.30, the average price target implies possible upside of 39%. (See CVS stock analysis on TipRanks)