Many stocks hammered by virus can rebound

THE market’s battlefield is littered with casualties. Each quarter I write about stocks that have been wounded and have excellent recovery potential. I call it the Casualty List. This quarter there are many candidates; dozens of solid stocks are down 40 percent or more.

Blame the coronavirus and massive shutdowns of businesses from movie theaters and restaurants to professional sports. No one knows how long it will take for the epidemic to subside (I guess summer or fall) or for the stock market to clamber back onto its feet (I guess this spring or summer).

The record

Buying good stocks on bad news often pays. The record of my Casualty List columns illustrates this point. The one you’re reading is the 68th one. Twelve-month returns can be calculated for 64 of the 68 columns. The average return has been 15.8 percent, compared with 9.8 percent for the S&P 500.

Of the 64 lists, 42 have shown a profit, and 33 have beaten the S&P 500.

Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.

My Casualty List from a year ago fell 14 percent, compared with a 11.8 percent loss for the S&P 500. Big losses on Walgreens Boots Alliance (WBA) and ArcBest Corp. (ARCB) drowned out a nice gain for Biogen Inc. (BIIB).

Here are four fresh bounce-back candidates.

Carnival

The spectacle of people being stuck on a cruise ship while COVID-19 creeps from passenger to passenger was vivid and disquieting.

No wonder stocks of the major cruise lines have plummeted. Carnival Corp. (CCL) has fallen 71 percent through March 27, Royal Caribbean Cruises Ltd. (RCL) 74 percent, and Norwegian Cruise Line Holdings Ltd. 78 percent.

I owned Norwegian personally and for clients when the epidemic began, but I sold it on Feb. 25. If I were to buy a cruise stock now, I’d go with Carnival. It has the strongest balance sheet in the group, with debt at 45 percent of equity.

Cullen Frost

Down 44 percent this year is Cullen/Frost Bankers Inc. (CFR), which suffers from a double whammy. It is a regional powerhouse in Texas, an energy-dependent state (though not as energy-dependent as it used to be). The energy industry is in the soup, with oil prices having fallen to about $20 a barrel from $100 less than six years ago.

In addition, to fight the recession that the coronavirus will inevitably cause, the Federal Reserve has dramatically lowered interest rates. That’s generally bad for banks, which depend on the spread between what they pay on deposits and what they get on loans. Higher rates usually mean wider spreads.

Skyline Champion

Skyline Champion Corp. (SKY) makes manufactured homes — what used to be called mobile homes. Yes, there is a small stigma attached to living in a trailer park. But if you have a modest income and want a home of your own, it’s a realistic solution.

Skyline had a long history of losses running from fiscal 2007 through fiscal 2015. But it’s done well lately. And I think the stock may be timely, as tough economic times are likely to outlast the COVID-19 epidemic.

I love Skyline’s balance sheet. Debt is only 8 percent of stockholders’ equity, and the company has four times as much cash as debt.

Viacom CBS

Both halves of Viacom CBS (VIAC) have suffered badly from the coronavirus. With movie theaters closed, the Viacom half has had its cash flow crippled. With professional sports on hold, the CBS half has lost a big part of its revenue flow.

Observing this, investors have marked down Viacom CBS stock by 69 percent this year, to less than $13 a share from about $42 when the year began.

I think there is a lot of long-run earnings power here. The virus problem is fierce, but it won’t last forever.

Viacom CBS now trades for two times trailing earnings, 60 percent of book value (corporate net worth per share) and 22 percent of the past four quarters’ revenue. I think it’s a steal.

If you agree with my reasoning on the stocks I talked about today, I suggest buying in stages — perhaps a third now, a third in May and a final third in July. You can adjust this timetable based on your judgments about the epidemic and the market.

Disclosure: I own Viacom CBS shares personally and for almost all my clients.