With the S&P 500 down 28.4% in the past month, it's fair to say the novel coronavirus pandemic has not started us out on the right path for 2020. Still, not all is hopeless.
For those with some extra capital lying around, there are some plays to be made. I like a small bank that has just gone on sale called CNB Financial (NASDAQ:CCNE), the quarantine-friendly nature of social media stock Facebook (NASDAQ:FB), and the king of warehouse retailers Costco Wholesale (NASDAQ:COST). If I had $5,000 available right now to invest, it would be put toward buying some combination of these three stocks.
1. CNB Financial: A growing bank
CNB Financial is a smaller bank that is creating some big growth. I took shares in the bank at $20 and around $17.43, and I am looking to increase that position at some point. The valuation here is what makes the bank such an appealing play. Growth has been stellar, and the current pullback has created a remarkable entry point for those with dry powder.
Interest income through the last three years has grown in the double digits, averaging 18.2% annually through that time frame. Net interest income from that cash has averaged 12.7% annually over the last three years. Non-interest income has also experienced annual growth, culminating in an average annual increase in operating income of 18.6% over the same time period.
Overall, CNB finished 2019 with a 19% gain in net income to $39.9 million.
Most of the growth here has only come in recent years, as the bank has engaged in M&A to spur growth. Most recently, the bank announced its agreed acquisition of Bank of Akron for $64.5 million. The trend of M&A has allowed for expansion into new markets in Ohio, while the bank has also pressed a new presence in the Buffalo, New York, area.
With $305 million reported in total equity on the balance sheet, the company carries a book value of $19.80 a share. At the time of writing, the stock carries a price-to-book of 0.93. It's not often that you can find a company that just reported a 19% increase in annual net income, and is also trading below book. The bank returned 13% on equity last year, outpacing the industry average of 11.8%.
The stock has lost three years of gains in less than a month, falling more than 30%. Now, the stock is prime for taking. As the stock has gained, the dividend yield had been neglected, offering less than desired on that front. Thanks to the sell-off, the yield is now at 3.4%. Over the last 20 years the stock has gained 263.9% versus the S&P 500's 131.7%. To me, this one is a no-brainer at these prices.
2. Facebook: Boredom leads to social media
Facebook requires absolutely no public exposure or travel to use. It has arguably made it far easier for couch potatoes to do nothing. Now, with the mounting fear and avoidance of public spaces, the social media giant seems likely to be a place of distraction and entertainment for those who are wisely avoiding the risks of going out. Because of these attributes, I consider it a safe play right now.
Giving up 28.3% in share price over a month's time, Facebook shares have fallen more than the S&P 500, and that might be offering some upside considering there isn't a lot within the company's business structure that should be affected by the coronavirus. As I said before, by my logic more people will be sitting inside staring at social media, thanks in large part to the coronavirus. So many professional sports leagues have been postponed. So many people are now working remotely, and so many schools have been canceled. This all leads to a lot of bored people with time on their hands.
Though overall revenue growth has slowed in recent years, Facebook still finished 2019 with 26.6% sales growth totaling $70.7 billion. Net income did slide 16%, but it had less to do with operations, which only saw income slide 4%. This virus might be the thing that shifts the story.
User growth remained strong through 2019, with a year-over-year 8% increase in monthly active users as of Dec. 31. With the slowing of businesses and activities, I think all of Facebook's apps, including Instagram, stand to see a rise in traffic in the foreseeable future. After the sell-off, shares are trading at around 23.6 times trailing full-year earnings of $6.43 per diluted share.
Current year analyst estimates are calling for earnings of around $9.07 per share. That would be some pretty nice growth year over year. It would also give the company a forward P/E ratio of 16.4. Overall, I like Facebook as a play in a time when many more businesses based on physical stores or real-world activities are facing a tough headwind.
3. Costco: Plenty of toilet paper available for sale
Long-term, the coronavirus can't hamper retail forever. But it most certainly does seem able to cause a lot of headaches in the short term. If this is a concern, then the king of bulk goods seems like the way to go. Costco carries everything in bulk, and the extra sales figures provided by the company when it reported on the most recent quarter gave insight into the effect that the coronavirus has had on its sales. Traffic increased 11.7% year over year in February, with a 9% increase in the United States. Thanks to the warehouse nature of Costco, the panic on COVID-19 seems to have driven customers to the store to prepare.
Overall, it is still about the long game, rather than the short-term shock of something like the coronavirus. In the ever-continuing onslaught between Amazon and virtually every other retailer, Costco carries the weight to thrive.
Revenues have gained an average of 7.1% annually from fiscal 2016 to 2019, with prudent management leading to an annualized average gain in net income of 11.7% through that same time frame. Similarly, earnings per diluted share averaged 11.6% through that same time frame. Finishing fiscal 2019 with $8.26 per diluted share, earnings increased 16.5% for the year.
Sales for the first two quarters of fiscal 2020 have been encouraging. Total comp sales for the first 24 weeks of the fiscal year are up 6.6% year over year, with 7% gains in the United States. E-commerce sales are up 17.4% through that time frame. Thus far for the fiscal year, total revenues are up 8% at $76.1 billion, with earnings up 6.9% to $4.00 per diluted share.
For the second fiscal quarter alone, comp sales gained 8.9% with 28.4% gains in e-commerce. Net sales increased by 10.5% to $38.3 billion.
Full-year estimates are around $8.71 per share. Yes, that gives Costco shares a high premium of 33 times forward earnings. The retailer tends to command a higher premium due in part to the strength of its business over time.
Historically, Costco shares have absolutely decimated the S&P 500 over the last 20 years, gaining 509.2% versus the S&P 500's 106.3%. Market confidence is displayed in the stock's performance over the last month, as it is down 7.4% compared to the S&P 500's 19.8%. I like it as a good stock investment right now.