Market corrections usually don't occur just because valuations get stretched. There is normally a catalyst, and that catalyst almost always comes with uncertainty.
The novel coronavirus pandemic seems to be the catalyst this time, and now turmoil in the oil market has joined in. But investors can take advantage of the sell-off, especially when the underlying business has room to run and the market dynamics bring a better valuation. Today is one of those times.
Here are three familiar names where the business outlook remains strong, even with the short-term uncertainty brought by recent events. If you were savvy enough to have some investable cash available waiting for that market pullback, think about putting it into these businesses now.
1. Garmin: Navigating rough markets
Garmin Ltd. (NASDAQ:GRMN) used to be known for its GPS personal navigation devices, but that market sank when smartphones with GPS became ubiquitous. Garmin has reinvented itself, though, with its non-automotive segments driving its growth. Automotive now makes up less than 15% of its annual revenue, and the other segments have been on a strong growth trajectory for several years.
These results reflect the strong growth in the other segments that now drive the business.
|Segment||Three-Year Compound Annual Growth Rate|
After beating raised expectations in 2019, management sees sales growing by 6.5% in 2020. It routinely beats its conservative outlook, but even if that doesn't continue as current events mute consumer spending, the 22% pullback in the stock from its recent high has made it a compelling buy.
The price-to-earnings ratio is back to where it was two years ago, while sales, profitability, and the company's balance sheet are stronger than ever. With a recently announced 7% dividend increase, virtually no debt, and $2.6 billion in cash and marketable securities, this cash flow cow has plenty to continue to grow the business and reward shareholders along the way.
2. Coca-Cola: Have a Coke and a smile
Coca-Cola Co. (NYSE:KO) has been a reliable investment for decades. It's not by coincidence that it remains in the top five holdings of Warren Buffett's Berkshire Hathaway. This consumer staple has successfully navigated many economic cycles and is positioned well for the next downturn.
Coca-Cola's revenue grew 9% in 2019, showing that its product initiatives are increasing share in their respective segments. Its trademark brand grew 6% with offerings like Coca-Cola Zero Sugar expanding its footprint, and its juice and smoothie brand, innocent, continuing to grow. With cash from operations up 37% and free cash flow up 38% for the full year last year, Coca-Cola looks to continue to be a good defensive investment in turbulent times.
While a global brand like Coke won't be immune to effects from the novel coronavirus pandemic, an advantage its size gives is to be able to source locally, avoiding supply chain disruption. The company has reaffirmed its 2020 outlook on Feb. 21, and intends to give another update in April on its earnings call. With China being its third-largest market by volume, recent developments seemingly showing COVID-19 has peaked there is welcome news for the company.
3. Hasbro: A toy story worth telling
Some of the first companies affected by the coronavirus outbreak were toy manufacturers, due to the significant supply chain connections to China. Hasbro Inc. (NASDAQ:HAS) stock is about 37% off its recent 2020 highs, with a current dividend yield over 4%. With toy production for brands like the Walt Disney Co. (NYSE:DIS) Frozen and Princess, Marvel, Nerf, Star Wars and Transformers, the popularity of its products isn't a question.
On Feb. 21, Hasbro announced a multi-year renewal of the merchandising relationship for Disney's Marvel and Star Wars. This includes such popular characters as Iron Man, Black Widow, Spider-Man, Black Panther, as well as new offerings like Baby Yoda from The Mandalorian. The rollout of Disney+ streaming could be another runway for growth for these characters. And the recent market has provided an opportunity.
As a defensive play in an uneasy market, Hasbro has a sustainable dividend at its current share price, with a payout ratio of about 65%. Along with a strong pipeline and the lower stock price, this looks to be at a good valuation for investment.