The market has been on a huge winning streak. At least until the last week or two, stocks have been going straight up for months now. That’s left a lot of stocks looking downright expensive.
Far away from the special purpose acquisition companies (SPACs), the hot electric vehicle (EV) names and the biotechs, you can still find stocks trading at good prices. That’s because many of these names have something clearly troubling them at the moment. However, these seven comeback stocks are about to turn the corner.
You see, not all companies struggling now will remain in the doldrums for too long. Be it recovery from the novel coronavirus, improving commodity markets, or short-term market disruptions, these seven comeback stocks have a path to a far healthier outlook by the end of 2021.
My top picks are:
- Corporacion America Airports (NYSE:CAAP)
- First of Long Island (NASDAQ:FLIC)
- Empire State Realty Trust (NYSE:ESRT)
- National Beverage (NASDAQ:FIZZ)
- Ambev (NYSE:ABEV)
- Entergy (NYSE:ETR)
- TC Energy (NYSE:TRP)
Comeback Stocks: Corporacion America Airports (CAAP)
Corporacion America Airports has a fantastic com
eback story. Shares of the multinational airport operator made their initial debut on the NYSE in 2018 at $16 each. Given challenging economic and political developments in South America, CAAP stock slipped to $7. Then the pandemic hit, and seemingly overnight, CAAP stock plummeted to just $2.
Now, though, shares are on the mend. The stock is back up to $4.50 and set to keep gaining altitude. CAAP is the largest private airport owner (by number of concessions held) in the world, with its properties spanning Italy, Argentina, Brazil, and numerous other countries. Not surprisingly, traffic ground to a virtual halt during the height of the pandemic. Now, though, most of CAAP’s key markets have reopened at least partly, if not entirely.
Additionally, CAAP has received numerous relief efforts from various countries where it does business. These include employee salary support, tax relief, and even added years to the company’s airport concessions as compensation for 2020’s losses. On top of that,
CAAP secured a key 10-year lease extension for its prized Argentine airports, which include both of Buenos Aires’ international hubs. That pushes out those contracts’ life to 2038, ensuring many more years of strong profits to come.
At the worst point of the bust, CAAP was selling for less than $500 million in market capitalization despite serving more than 80 million passengers per year. That’s pretty interesting compared to, say, Mexico’s Grupo Aeroportuario del Sureste (NYSE:ASR) – the owner of the Medellin, Colombia and Cancun, Mexico airports. Sureste serves far fewer passengers annually than CAAP but has a market cap of $5.6 billion. Even accepting a reasonable discount because Argentina has a much weaker economy than Mexico, CAAP stock is still way too cheap here. Most other airline and aviation stocks have already come roaring back; CAAP stock should too.
First of Long Island (FLIC)
You probably heard about the supposed “death of New York” last year. Media personalities were quick to claim that New York and other big cities were in for a world of hurt. With telecommuting reducing the need to live in big cities, and widespread looting last summer causing much of New York’s businesses to be boarded up, it was easy to take shots at the Big Apple.
And yet, what if all that story was overblown? At some point – hopefully fairly soon – life will start going back to something more normal. And when it does, New York will still be the country’s largest city, economic hub, and center of all sorts of cultural, sporting, culinary and other such pursuits.
All that is to say that while New York’s economy may slow down for a few years, the people writing its obituary in 2020 are going to look foolish.
With that in mind, let’s talk about regional bank First of Long Island. The bank, as its name suggests, is based in Long Island, NY, though it has operations in Queens and several other boroughs of the city proper as well. Notably, it is not particularly exposed to Manhattan on either a deposits or lending level. We’re largely talking suburban counties immediately outside of New York City here.
FLIC stock was a home run performer prior to Covid. Shares were up 300% out of the financial crisis and a ten-bagger from the 1990s-onward. The bank’s formula is simple: double-digit asset growth combined with low-risk lending and highly efficient operations.
Now, though, with the pandemic, FLIC stock has gotten pummeled. Shares dropped from $30 a couple years ago to less than $20 now. That’s even as most banking stocks are surging once again as higher interest rates (and thus bank profits) take hold.
As a result, FLIC shares are going for just 11x earnings and offer a greater than 4% dividend yield. And, historically, the company has been able to grow earnings at more than 10% per year as well. Will it be able to in the future? Only time will tell. However, New York has been through many crises before and it’s always made a recovery.
Empire State Realty Trust (ESRT)
Sticking with that theme, we have the Empire State Realty Trust. You may not have realized it, but the Empire State Building itself is a publicly traded company. Well, rather, it plus around a dozen other office buildings in Manhattan and the New York suburbs. These assets constitute the REIT that trades as ESRT stock.
Empire State is composed of three primary businesses. It rents offices to people, both in its namesake building and its other smaller office properties around the city. It also rents retail storefronts on the ground levels of its buildings. The retail corridor around the Empire State Building in particular is highly valuable – the world-famous Macy’s (NYSE:M) flagship store is just a block away, after all.
And then, you have the Empire State Building Observatory. The world-renowned Observatory makes up the top stories of the skyscraper. Management has spent heavily on getting the building featured in numerous movies and music videos, and thus the property has done well in the age of Instagram and Tik Tok.
The Empire State Building now attracts a huge chunk of its tourist visitors from abroad, with particular interest from the Asian market. Of course, this has basically dried up with the pandemic. If you believe international tourism will come roaring back once vaccines are widely deployed, then ESRT is a compelling comeback stock. Not only do you get one of the world’s iconic skyscrapers and all the office and retail that comes with that, you also have one of the most well-known tourist attractions out there. All that in a stock that is still down sharply from where it was a few years ago.
National Beverage (FIZZ)
National Beverage could be another compelling comeback stock story. This one combines several threads together nicely. The company, for those unfamiliar, makes La Croix sparkling water. FIZZ stock was a huge winner a few years ago as it rode a massive growth wave. Since then, however, shares have cooled off amid rising competition, heavy short selling, and some unusual complaining by the CEO.
While the short sellers raise some fair point – you can ding National Beverage on a few fronts if you want – I suspect the short sellers have overstayed their welcome.
If I were a short seller, I’d certainly want to cover my position ahead of the summer outdoor activity season. As the economy reopens, the company should put up stronger comparable sales figures. And given how much the market loves high short interest stocks at the moment, this seems like a great opportunity for a squeeze.
Speaking of beverages, we also have Brazil’s dominant brewing house, Ambev. It, in turn is a subsidiary of Anheuser-Busch Inbev (NYSE:BUD) that does brewing for that giant in Brazil, Spanish-speaking South America, and Canada.
Most of the Covid-19 reopening types of stocks, such as restaurants, retail, and shopping REITs have already soared. Same goes for many of the beer and spirits companies located in the developed world.
However, ABEV stock has missed that trend so far. Traders are fretting about emerging markets. There’s some sense to that; Latin American countries like Brazil have run smaller stimulus packages than we’ve seen in North America or Europe. Thus, local economies will take longer to kick back into gear.
Still, once the global economy recovers, ABEV stock will ride the reopening wave. Shares are still down from $4 pre-pandemic to around $2.47. Additionally, the company has no debt, meaning it’s in fine position to ride out this downturn without any drama. Keep an eye on this comeback stock.
Traders have been dumping utility stocks lately. It’s understandable why. Investors generally own utility stocks for their dividends. Now, though, interest rates are spiking. Governments are running huge budget deficits. That could cause a surge in inflation. As a result, with the interest rates on bonds rising, people are willing to pay less for “bond substitutes” such as blue-chip utility stocks.
Combine that general negative backdrop with Entergy in particular, and you have a utility that has turned into a pure value stock. Entergy is a power utility based out of New Orleans. However, it also operates a significant business in Texas.
Given the fiasco that happened with the weather and electric grid there recently, investors rightly may be taking a sell first, ask questions later view on any power business in Texas.
That said, the effect on Entergy appears muted. CEO Leo Denault, in an earnings conference call on Feb. 24, noted that the firm spent an extra $125 million to $140 million on overtime and other costs for its workforce to get power flowing again. And it spent $400 million on extra fuel to deal with all huge spike in demand due to the winter weather. That’s a real cost, to be sure, but it’s hardly a massive problem for a company worth $17.6 billion at today’s market capitalization.
And, on the plus side, there’s a great comeback story for ETN stock, which is off by a third over the past year. Entergy is one of the leaders in deploying solar power, and is one of few utilities that made it into the Dow Jones Sustainability Index. This puts it in prime position to be a beneficiary of President Joe Biden’s more green-focused energy and infrastructure agenda. In the meantime, the stock goes for just 13x TTM earnings and pays a greater than 4% dividend yield.
TC Energy (TRP)
Oil and gas is starting to make a recovery. At least, judging by the price of crude oil itself or the highly levered wildcat production companies. NYMEX Crude Oil futures, for example, have quietly run back up around $60 per barrel now; they were at just $45 in December.
So far, however, this rebound hasn’t spread to the pipeline space yet. Traders are worrying about politics. The Biden administration is probably not going to be favorable to pipeline operators in the short-term. However, that may actually be a blessing in disguise. As it’s becoming increasingly difficult to build new pipelines in North America, existing pipeline operations become more valuable.
As is, TC Energy, one of Canada’s two bellwether pipeline firms, has held steady despite the energy bust of the past decade. TRP stock has continued to pay out its large dividend, unlike most other energy companies. And, with oil and gas surging again, it’s only a matter of time until investors pile back into the pipelines. For now, TRP stock remains down 16.64% over the past year and currently pay a 6%-plus dividend yield.
On the date of publication, Ian Bezek held a long position in TRP, ABEV, CAAP, ESRT, ASR, and FLIC stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.