Fear is back in the markets in a big way.
Stocks had their worst day since 1987 on Thursday as the the Dow dropped -10%, the S&P 500 sank -9.5%, and the Nasdaq fell -9.4%.
All three major indexes are now in a bear market after falling more than -25% since their record highs reached last month as investors flee risk assets amid the coronavirus chaos and the sudden drop in oil prices following Saudi Arabia and Russia launching an all-out oil price war early this week.
But as the market falls, analysts at Jefferies say there is an opportunity for investors to scoop up stocks with double-digit upside ahead.
“Certain facets of this year’s selloff have gone from notable to undeniably compelling,” the analysts wrote in a note this week, highlighting stocks in industries that “have been unfairly punished in an unnaturally punitive tape.”
All five of these stock are down by double-digits over the last month with Activision down -13%, Amazon down -22%, BlackRock down -32.5%, Home Depot down -21%, and Microsoft down -25%.
Still, the Jefferies analysts say that all six are “generally considered higher quality names, are larger in [market capitalization], have strong balance sheets, produce robust cash flows and are differentiated [versus] peers.”
Jefferies analyst Brent Thill has a Buy rating on Amazon shares and a $2,300 price target on the stock, indicating 37% upside over the next twelve months.
Thill argues Amazon is a “potential beneficiary of COVID-19 as consumers stock essential items and look to avoid crowded areas by ordering online.”
While Amazon could see a drop in advertising revenue and supply chain issues from the virus outbreak, Thill believes the company is big enough and diversified enough to deal with a possible slowdown.
Thill also likes Microsoft and noted that while the software giant dropped guidance for its “More Personal Computing” unit, it “was solely due to lowered Surface and Windows OEM expectations related to COVID-19.”
The issue should be temporary and, more importantly, isn’t a key marker of the strength of Microsoft’s broader business. Thill says the company as “a clear line of sight into double-digit revenue growth for the foreseeable future,” and “is uniquely positioned to benefit from the growth of both the [infrastructure as a service]/[platform as a service] markets as well as the [software as a service] market,” and says the stock can rally more than 20%.
Analyst Alex Giaimo said in a note that video game “stocks are less exposed to the COVID-19 issue, and possibly even stand to benefit given the stay-at-home nature of their business model.”
Giaimo likes Activision due to its “solid visibility into the product pipeline, the company’s aggressive mobile approach,” and believes the stock can see at least 20% upside ahead.
Oppenheimer analyst Andrew Uerkwitz is also bullish on Activision Blizzard, upping his rating on the stock to Outperform this week along with a $68 price target – 24.6% higher than the price as of this writing.
“We believe the selloff creates a good entry point to build an opportunistic position in ATVI,” Uerkwitz wrote in a note. “We believe momentum from the [Call of Duty] franchise will contribute to material upside for near-term results and build stronger confidence for ATVI’s ability to revitalize its again franchises.”
While things don’t look great for BlackRock right now with the stock down more than -32% over the last month, analyst Dan Fannon wrote that “the mark-to-market impact of the last two weeks is a headwind to AUM and earnings.”
However, Fannon believes that the “longer-term outlook for the organic growth of its leading iShares platform, active fixed income products and its technology offering remain strong,” and says the stock could see gains of around 25%.
As for Home Depot, analyst Jonathan Matuszewski says the “backdrop for home improvement is supportive over the medium term” thanks to lower interest rates, strong construction trends, and an increase in remodeling rates as Baby Boomers seek to age in place.