Every Sunday, I put together a list of story ideas that revolve around groups of stocks to buy. One week it might be dividend stocks, the next it might be a value play, and the week after that it might be consumer discretionary.
This past weekend as I scanned the news looking for ideas, I came across a Barron’s article with the title “The Two-Day Stock Selloff Hurts. It’s Still a Bull Market No Matter Where You Look.”
That was last weekend. On Monday, Feb. 24, the Dow Jones Industrial Average and S&P 500 fell by 3.6% and 3.4%, respectively, their single-day worst performances since February 2018.
Before Monday’s coronavirus-induced selloff, I did a stock screen looking for companies with market capitalizations of $2 billion or more that had fallen by 10% or more over the past week. It came up with 41. After Monday’s selloff, the list had expanded to 135, leaving me with plenty of options.
Here are the seven stocks to buy that are down but not out.
Stocks to Buy: Balchem (BCPC)
Past Week Total Return: -10.7% (through Feb. 24)
Year-to-Date Total Return: -3.4%
If reversion to the mean is something you believe in, the chemical manufacturer Balchem (NASDAQ:BCPC) is setting up nicely for better times ahead despite its poor relative performance in recent years.
On Feb. 21, Balchem reported fourth-quarter 2019 results. On the top line, it had sales of $166.5 million, about $1 million higher than the consensus estimate. On the bottom line, its earnings per share were 88 cents, 4 cents higher than analyst expectations.
In its Q4 2019 conference call, CEO Ted Harris had a lot of positives to say about its business in 2019.
“Financially, we delivered sales of $643.7 million with year-over-year sales growth in three of our four segments. Human Nutrition and Health, Animal Nutrition and Health and Specialty Products all delivered record sales performances in 2019,” Harris stated Feb. 21. “These sales drove record adjusted net earnings of $103.7 million compared to $97.8 million from the prior year, an increase of $5.9 million or 6.1%.”
Most notably, the CEO talked about new products Balchem launched during the past year including expanding its PetShure animal nutrition products and other processing additives that help pet treats taste better.
You don’t often think of chemical companies as big innovators, but Balchem continues to push innovation. Long term, its stock will deliver the goods.
Stocks to Buy: Conagra Brands (CAG)
Past Week Total Return: -10.6% (through Feb. 24)
Year-to-Date Total Return: -17.7%
In January, I included Conagra Brands (NYSE:CAG) in a list of seven food stocks to buy. While it hasn’t delivered appetizing results in the month since, I believe the group of brands it’s assembled will succeed over the long haul. Just don’t expect it to happen overnight.
On Feb. 17, Conagra cut its fiscal 2020 forecast due to slowing sales across its entire business. It now expects organic sales growth of no more than 0.5%. While that doesn’t sound good, sometimes these things are temporary. The good news is that the company still expects adjusted EPS of $2 a share. It currently trades at 12.7 times this estimate.
Over the past year, CAG stock has had a hard time staying above $30. In 2019 it hit a 52-week high of $35.59 only to fall back to $28 over the next two months.
CEO Sean Connolly is confident the company will regain its stride later in 2020.
“Despite the unplanned third quarter consumption downturn, we remain encouraged by the health of our brands and the traction we have made on our fiscal 2020 innovation slate. We have gained share in many of our categories during the quarter and, based on our analysis, believe the recent consumption weakness is abating. We expect a resumption of year-over-year organic net sales growth in our fourth fiscal quarter,” Connolly stated in a Feb. 17 press release.
I would buy anywhere under $30. At $25 and below, it’s a bargain.
Artisan Partners Asset Management (APAM)
Past Week Total Return: -10.1% (through Feb. 24)
Year-to-Date Total Return: -3.3%
Like most active asset managers, the past few years have not been easy for Artisan Partners Asset Management (NYSE:APAM), who’ve seen index exchange-traded funds capture all the glory despite all the good work its portfolio managers do for the company’s clients.
In October 2018, I recommended APAM stock has one of seven high-value, high-yield growth stocks to buy. At the time it was yielding 8.2%. Now it’s yielding 8.9%, a monstrous yield for anyone looking for income and not just capital appreciation.
If you’re worried about Artisan’s ability to keep paying the dividend, you should know that its trailing 12-month free cash flow is $275 million, a little less than it paid in 2018, but still plenty to meet its dividend payments for the next year.
As for value, I generally consider stocks with an FCF yield of greater than 8%. Based on an enterprise value of $2.6 billion, it’s currently yielding 10.6%, 260 basis points higher than my minimum criteria.
If you merely want to park your money, you could do a lot worse than Artisan Partners. Interestingly, Democratic presidential candidate Tom Steyer holds 1.1 million of its Class C shares, which accounts for 1.4% of its overall voting power.
Align Technology (ALGN)
Past Week Total Return: -12.7% (through Feb. 24)
Year-to-Date Total Return: -16.1%
Like many of the stocks that are down in 2020, Align Technology (NASDAQ:ALGN) has nothing to be ashamed of two months into the year. On Jan. 29, it announced full-year sales of $2.4 billion, 22.4% higher than in 2018, along with a net profit of $442.8 million, 10.6% higher than a year earlier.
While the company’s Invisalign clear aligner is its best-known product, it also sells the iTero scanner, which helps dentists demonstrate the future results of using Invisalign. In 2019, revenues for the scanner and related services grew 38.5% to $381 million. It might not be near its Invisalign revenue, but at 38% per quarter, it could get into the billions in no time.
Analysts were expecting $1.39 a share in earnings in the fourth quarter; it delivered earnings that were 14 cents higher at $1.53.
In April, I recommended Align along with six other dental stocks to buy. It’s down 21% in the 10 months since. I thought it was a buy at slightly less than $300. At $235, it’s an even better buy.
Owning ALGN will put a smile on your face over the long haul.
Past Week Total Return: -16.5% (through Feb. 24)
Year-to-Date Total Return: -11.6%
It appears Jeld-Wen (NYSE:JELD) has a hole in its stock so far in 2020. For that matter, the maker of windows and doors hasn’t exactly lit it up since going public in February 2017 at $23 a share. Three years later, it’s trading below its IPO price, and well below its all-time high of $42.27 in January 2018.
Sadly, like a lot of IPOs sponsored by private equity, companies are gussied up to look good only to collapse within a number of years. While Jeld-Wen isn’t in critical condition, its sales have basically gone sideways since 2011.
In 2011, Jeld-Wen had annual sales of $3.2 billion. In 2019, it had sales of $4.3 billion, a compound annual growth rate of 3.9%.
Looking to 2020, it expects revenues to grow between 1%-4% over 2019 with adjusted EBITDA growth of at least 8%, perhaps even more. In 2019, its adjusted EBITDA margin was 9.7%. In 2020, Jeld-Wen management expect it to hit double digits. Long term, its goal is 15% adjusted EBITDA margins.
At $20, JELD is a good long-term value buy.
Past Week Total Return: -10.2% (through Feb. 24)
Year-to-Date Total Return: -12.9%
Back in late January, I said that Roku (NASDAQ:ROKU) was a buy at $129 where it was trading at the time. As I write this it’s around $118. I don’t believe anything’s changed in the past month to alter my buy recommendation. In fact, Roku reported Q4 2019 earnings Feb. 13 that were better than expected.
In the fourth quarter, it had average revenue per user of $23.14 on a trailing 12-month basis, 29% higher year-over-year while streaming hours increased by 16.3 billion hours to 40.3 billion.
“We predict that by 2024 roughly half of all U.S. TV households will have cut the cord or never had traditional pay TV,” the company wrote in its letter to shareholders. “While 2019 was a tipping point in commitments to streaming, the full force of change is still to come.”
I believe that CEO Anthony Wood is one of the better chief executives in America. As long as the company continues to grow its active accounts, streaming hours and average revenue per user (ARPU) on a sequential basis, adjusted EBITDA will eventually arrive.
In the meantime, watch for ROKU to drop below $100. If it does, back up the truck and buy like crazy. Under triple digits, it’s a screaming buy.
Past Week Total Return: -10.1% (through Feb. 24)
Year-to-Date Total Return: 9.3%
One of only two stocks up year-to-date despite the carnage of recent days, Workday (NASDAQ:WDAY) seems to be holding its own in this volatile environment.
In October 2018, I recommended Workday stock as one of seven tech stocks to buy that were benefiting from increased demand in human capital management software. Like a lot of tech growth stocks, Workday wasn’t making money. It still isn’t on a GAAP basis. However, on a non-GAAP basis through the first nine months of its fiscal year, it made $340.5 million on $2.7 billion in revenue.
“We executed well in the third quarter and delivered strong results, with subscription revenue growth of 28% and non-GAAP operating margin of 15%,” CFO Robynne Sisco said. “We are well positioned as we enter our seasonally strongest quarter, and we are raising our fiscal 2020 subscription revenue outlook to $3.085 billion to $3.087 billion.”
In the first nine months, Workday had a non-GAAP operating margin of 13.9%, 410 basis points higher than in the same period a year earlier.
Long term, WDAY plays in the right sandbox. Human capital management is the place to be in HR software.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.