The market's sell-off has left Amazon and others 'unfairly punished,' Jefferies says

Published Tue, Mar 10 20208:50 AM EDT

Recent market volatility and a sharp sell-off have left several top-quality stocks "unfairly punished" and now offer investors a rare chance to buy at a discount to historical valuations, Jefferies told clients in a note published Tuesday. Stock markets around the world have shuddered in recent weeks as the spread of the novel coronavirus and measures to contain the disease worry investors that lower workplace output could tip the global economy into recession. Those virus fears were bad enough to send the S & P 500 and Dow Jones Industrial Average into corrections, but the addition of oil price fisticuffs between OPEC and Russia over the weekend added fuel to the fire. West Texas crude prices plummeted more than 20% on Monday and notched their worst session since 1991, dragging the U.S. indexes to the precipice of a bear market. But the eye-watering equity declines, while based on real economic headwinds, have nonetheless left a handful of strong companies undervalued, Jefferies wrote Tuesday. "With markets now beginning to price in the palpable anxiety of a looming recession, dislocations for some equities are approaching the limits of, and in some cases have exceeded, what is reasonable," a team of analysts at the brokerage wrote. Equity of household names like Amazon and others looks even more tempting after (in Amazon's case) a 15.6% decline over the past month, Jefferies says. "With central banks already moving to ease, and governments evidently focused on finding additional means to provide relief, certain facets of this year's sell-off have gone from notable to undeniably compelling," the brokerage added. Here are a few of the 11 names Jefferies advised its clients to consider buying amid the volatility. The group has an average upside of 38% based on current Jefferies price targets. 1) Amazon ( AMZN ) "AMZN is a potential beneficiary of COVID-19, as consumers stock essential items and look to avoid crowded areas by ordering online. Brent also sees the benefit of price increases in commodity products (particularly healthcare) more than offsetting any near-term inventory issues from idle factories in China. Advertising is the one area of near-term concern, as businesses look to pull back on buckets of discretionary spending." Jefferies internet analyst Brent Thill recommends investors buy Amazon shares and he has a $2,300 price target on the equity, implying 27% from Monday's close at $1,800 a share. 2) Linde ( LIN ) "Since posting a 4Q earnings beat, LIN's shares have fallen 22% (versus 19% for the S & P 500 and 27% across Chemicals coverage). The extent to which the coronavirus and industrial weakness has been incorporated in LIN's outlook appears underappreciated. ... LIN's share price has fallen close to in-line with the sector average, even as most of the Chemicals universe is dependent on a flat or slightly better 2020 macro environment to hit guidance." Jefferies analyst Laurence Alexander has a buy rating on Linde shares and sees the stock's price rising to $255 a share, up 47% from Monday's close of $173.13. 3) Mondelez ( MDLZ ) "Although the company's top line could potentially decelerate given global GDP growth risk, chocolate/indulgence food categories usually do well in recessionary environments, and pantry-loading in the U.S. could help offset China pressure in the near term. Rob likes the name given its long-term growth potential, strong balance sheet and its coffee JV interests, which provide MDLZ with strategic optionality, capital-sourcing, and value-creation upside." Analyst Rob Dickerson has a buy rating on Mondelez and sees its price rising to $64 a share, up 18% from Monday's closing price of $53.94. 4) Texas Instruments ( TXN ) "TXN has a best-in-class capital return policy of returning 100% of its excess cash to shareholders, and its dividend yield at recent prices is about 3.4%. Cyclically, Mark believes that the hardware supply chain is at the bottom of an inventory correction, and he favors integrated manufacturers like TXN who have excess capacity and a superior cost structure, as he expects them to report levered EPS surprises and share gains during a recovery." Jefferies analyst Mark Lipacis recommends investors buy Texas Instruments and sees 56% upside from Monday's close at $105.04 a share. — CNBC's Michael Bloom contributed reporting.

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Andrew Harrer | Bloomberg | Contributor

Stock markets around the world have shuddered in recent weeks as the spread of the novel coronavirus and measures to contain the disease worry investors that lower workplace output could tip the global economy into recession.