I made a killing back in 2008 and 2009 identifying stocks to buy that I felt priced in an excessive amount of risk or had value that was underappreciated.
All stocks take a hit when the economy enters a recession. But there’s a difference between contractions in earnings multiples and a stock trading as if it will likely go bankrupt.
There are plenty of companies right now with legitimate bankruptcy risk, especially within the energy sector. But those types of fears tend to trigger a contagion in the market when panic starts to hit.
For the first time since 2009, I’m starting to see that phenomenon creating opportunities throughout the market in 2020. Here are five stocks to buy on any major dips caused by the coronavirus from China.
Stocks to Buy: Alphabet (GOOG, GOOGL)
Shares are down 16% year-to-date compared to the 25.2% drop for the S&P 500. Alphabet trades at just 20.2 times forward earnings and 4.8 times sales. In the most recent quarter it grew revenue by 17% and generated a staggering $10.7 billion in net income.
Plus, it has a dominant share of the high-growth online advertising market. It is also the leading company for autonomous vehicle technology, according to Navigant Research.
There are simply too many reasons to like this stock, especially trading at a discount. I dipped my toes in GOOGL stock at $1,067.
Bank of America (BAC)
Bank of America (NYSE:BAC) was a big winner for me back when I bought it at $4.96 per share on Feb. 9, 2009.
Sure, the stock is a bit more pricey this time around. But the difference between then and now is like night and day. Then, Bank of America (and Merrill Lynch) were at the epicenter of the financial crisis. There were real concerns the whole financial system could be going down the tubes.
Today, the banks are just one of many groups being negatively impacted by the downturn. Sure, 0% interest rates will hurt net interest margins. But banks have dealt with that headwind for more than a decade now.
Bank of America has a robust balance sheet thanks to post-crisis regulations. And it’s trading at 7.6 times 2018 earnings and 0.7 times its book value. That’s a price that’s too good to pass up. This is not 2009. I started buying at $19.58.
General Motors (GM)
General Motors (NYSE:GM) stock is another stock that I believe the market simply isn’t seeing clearly. It seems like the narrative is that the auto industry is in shambles.
In reality, Tesla isn’t in GM’s league. Tesla likely will not hit its guidance for 500,000 vehicle deliveries in 2020. Meanwhile, GM sold 7.7 million vehicles in 2019. GM stock is trading at under 4 times normalized earnings per share. It also just updated shareholders by saying it will have at least $15 billion in cash on its balance sheet as of the end of the first quarter.
In the same update, it didn’t cut its 7.1% dividend, even though it had the perfect opportunity to do so following Ford’s dividend cut. I started buying GM stock at $18.30 and will add on any further weakness.
United Airlines (UAL)
I’m a huge fan of Warren Buffett, and United Airlines (NASDAQ:UAL) stock seems like the perfect Buffett stock to buy on this dip.
Not only does Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) already have an 8.8% stake in United, it’s exactly the type of selloff that Buffett loves. Buffett loves to buy beaten-down stocks with solid businesses that are simply the victim of circumstance.
That description matches UAL to a tee. Travel stocks were the single hardest-hit group from the coronavirus. Prior to that, UAL was killing it, generating $641 million in net income in the most recent quarter. If UAL ultimately needs a bailout, I’m betting Buffett will bail it out, not the government.
In fact, United and American Airlines (NASDAQ:AAL) are the two most likely takeover targets for Buffett during this downturn, in my opinion. I started buying UAL stock at $24.88.
Wynn Resorts (WYNN)
Wynn Resorts (NASDAQ:WYNN) stock is the perfect example of a stock that dropped to irrational levels. When U.S. casinos closed earlier this month, Wynn and the other large U.S. casino stocks tanked.
I started hearing about how casino stocks might face bankruptcy or a government bailout if casinos don’t reopen soon. In principle, I agree with that thesis, especially since casino stocks all carry heavy debt loads. Wynn carries $9.5 billion in debt. But the reality is that Wynn generates 65% of its revenue from Macau, not the U.S.
And yes, Macau shut down its casinos too. But Wynn began reopening its Macau casinos in mid-February. Wynn’s business will be crippled for a while. But it is not on complete lockdown like U.S. casinos are. With the stock trading at a normalized earnings multiple under 7 and less than 1 times sales, I couldn’t resist. I started buying at $52.18.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book Beating Wall Street With Common Sense, which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long GOOGL, GM, WYNN, UAL and BAC.