5 Recovery Stocks to Invest In for the Return to Normalcy
All the best recovery stocks share a common characteristic. They’ve fallen in price. But they’re far from worthless. A recovery stock is one that’s currently trading at a deep discount. And there’s a lot of promise it’s heading upward in the future.
However, it’s not easy finding investments still poised for growth. As our own Alexander Green warned at the beginning of the year, the waning of the pandemic and a budding economic recovery is already priced into stocks. That means now is a time for caution and greater selectivity.
Take United Airlines (Nasdaq: UAL) for example. Before the pandemic crash, shares were trading above $90. Then they fell to $17. The company has since shifted its guidance. And the stock has made a respectable recovery. This despite the fact that air travel is still down 60%.
Investors are anticipating pent-up demand for travel to result in a boon for United. Those who got in last when the stock crashed made a tidy profit. But there’s far more uncertainty for those who get in now. That’s why we put together this list of recovery stocks. They come from various sectors that we expect to outperform the greater markets when things get back to normal.
5 Recovery Stocks Ready for a Rebound
- Affiliated Managers Group (NYSE: AMG)
- Alaska Air Group (NYSE: ALK)
- Envista Holdings (NYSE: NVST)
- Madison Square Garden Entertainment (NYSE: MSGE)
- Merck (NYSE: MRK)
Affiliated Managers Group
Far from a household name, this investment management firm holds stakes in various private asset management operations. Right now, the financial sector looks particularly strong. And that can help lift Affiliated Management in its own right. A rising tide lifts all boats, right? But beyond that, the company looks strong on its own. Revenue for the company is ever so slightly down year over year. And that’s kept share price in check. But what’s not accounted for is the fact that expenses are down as well.
Another positive sign boils down to following the money. Affiliated Managers engaged in stock buybacks pre-pandemic. But the repurchasing stopped due to COVID-19. And now the stock buybacks are coming back. That sends a strong signal that confidence is building. And that this recovery stock still has a healthy amount of recovering to do.
Alaska Air Group
Compared with the aforementioned United Airlines, Alaska Air has much stronger fundamentals. The company has $3.3 billion in cash equivalents. And it did an impressive job at decreasing its cash burn amid the height of the pandemic. But here’s the thing we like most about Alaska Air…
Nobody expects business travel to return to pre-pandemic levels anytime soon. But Alaska Air has limited exposure to business travel. Its bread and butter is the leisure crowd. So when the travel bug finally gets let out of the bag, Alaska Air could be a recovery stock poised for a big bounce.
Nonemergency medical procedures have seen a dramatic slowdown. As the pandemic was just beginning to unfold, the Centers for Medicare and Medicaid Services released guidelines to postpone or outright cancel nonessential procedures. Some estimates suggest that elective procedures were down as much as 55%. Just like business travel isn’t expected to return to pre-pandemic levels anytime soon, neither are doctors visits. Telehealth has proven to be popular and looks to be sticking around. But this isn’t as useful in the dental industry.
You can’t get a cleaning or root canal via Zoom. It’s unlikely a dentist will be able to spot a cavity over FaceTime. So people are going to start heading back to the dentist soon. And a company like Envista, which is one of the largest global dental-product manufacturing companies will be ready when they do. The company’s diverse portfolio of dental implants, orthodontics and digital imaging technologies makes this a recovery stock in a position for greatness when the flood gates open.
Madison Square Garden Entertainment
Concerts look like they will return to this legendary venue as early as this summer. And that’s definitely good news for shareholders. MSG Entertainment also owns the Chicago Theater, which it’s shut down due to the pandemic. But it doesn’t look like the doors will be closed for much longer. And interestingly, MSG Entertainment’s stock has lagged behind other concert operators like Live Nation Entertainment (NYSE: LYV). That makes it set for an even bigger rebound.
On top of this, MSG Entertainment is preparing to build a state-of-the-art concert venue in Las Vegas called the Sphere, although the company expects construction won’t finish until 2023. So there is some long-term appeal here as well. Before the pandemic, Madison Square Garden was the top-grossing arena in the world. When sporting events and concerts return, MSG Entertainment will profit. And that makes this a strong recovery stock with years of growth potential.
Merck fell behind much of the pharmaceutical industry in the quest for a COVID-19 vaccine. While Moderna (Nasdaq: MRNA), Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE) all signed billion-dollar deals for their vaccines, Merck is still working on its oral antiviral for COVID-19. That’s made investors looking to make a quick buck less interested. And Merck stock is undervalued because of that.
But it still has one of the best overall vaccine franchises in the industry. Its cervical cancer vaccine, Gardasil, is estimated to be worth as much as $100 billion for the company. And the company’s top drug right now is Keytruda, which helps the immune system fight off lung cancer. Analysts estimate sales of this therapy will reach nearly $25 billion in the next few years.
On top of these moneymakers, Merck has 38 therapies in Phase 2 trials, 22 in Phase 3 and five that are currently under review. A COVID-19 vaccine is proving to be worth a lot in the short term. But when this virus fades, Merck will prove to be a worthwhile recovery stock. And it doesn’t hurt that it also has a healthy 3.5% dividend yield to boot.
The Bottom Line on Recovery Stocks
As investment expert Alexander Green pointed out, the economy recovered two-thirds of the ground it lost after the pandemic… before we even closed the door on 2020. And he anticipates that the U.S. is poised to have a record economy again within a matter of months. If that proves to be the case, these recovery stocks will be bouncing upward right alongside it.
For those looking for the best ways to stay ahead of market movements, we suggest signing up for Alexander Green’s Liberty Through Wealth e-letter. It’s free and jam-packed with his latest market analysis buoyed by his decades of market experience.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.