February is finally in the rearview mirror, and none too soon. While it started out on the right foot, it ended in disaster. The last week of the month dished out an 11.5% loss for the S&P 500, translating into an 8.4% setback for the full month. It was the worst single week for stocks since 2008 when we were in the throes of the subprime mortgage meltdown.
As is so often the case though, the sell-off was self-exaggerating, meaning investors flinched at the first sign of trouble, prompting more selling, prompting even more fear, prompting even more selling, and so on. It was not until late last week that the market realized a much-needed correction may have been completed, in full. That's not to say stocks can only move higher from here. It is to suggest, however, there may be more upside than downside ahead.
With that as the backdrop, here's a look at three of the top large-cap stocks that went "on sale" as a result of the recent drubbing and may be worth adding to your portfolio.
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1. AbbVie (ABBV): $134 billion market cap
Through 2017, AbbVie (ABBV 0.99%) was practically bulletproof. The stock was riding high on the double-barreled growth of anti-inflammatory drug Humira and cancer therapy Imbruvica, and the world didn't seem to think the good news would ever end.
It did end, of course, or perhaps it would be more accurate to say it's in the process of ending. Humira's primary patent in Europe has expired, and it's set to expire in the United States by 2023 -- only a matter of minutes in the drug development world. Imbruvica is still going strong, but its sales growth is slowing down, and it still only makes up about 15% of the company's total revenue. It can't carry all of AbbVie's weight on its own.
Concerns about these realities are a key reason shares fell by 50% from peak to trough between early 2018 and August of last year. Its market cap now hovers around $134 billion with a P/E ratio of 17.1, indicating it's trading at a bargain.
Patent expirations and maturing drugs are nothing new to the big names in the business, however, including AbbVie. While it continues to cultivate its pipeline, it also adds to its portfolio via acquisitions, announcing a deal to acquire Allergan (AGN) last year for $63 billion. It's a hefty price tag, but Allergan is also a prized asset. More importantly, nothing about the strategy is out of the ordinary. Most important of all, analysts expect AbbVie to grow the top line to the tune of 8% this year, and beef it up by 6.5% next year. Earnings are modeled to grow similarly, and the dividend yield of 3.6% isn't too shabby either.
2. Home Depot (HD): $259 billion market cap
Home improvement retailer Home Depot (HD 0.18%) aced its fiscal 2019 fourth-quarter report, earning $2.28 per share on sales of $25.78 billion, versus expectations of only $2.10 per share and a top line of $25.76 billion. Total revenue was down to the tune of 2.7%, but earnings were up from $2.09 per share, and perhaps most importantly, same-store sales grew 5.2% versus expectations of only a 4.8% increase.
Credit has to be given to the environment. Even with sluggish economic growth stemming from a tariff war with China, home buying has continued to grow. The National Association of Realtors' Pending Home Sales Index hit a two-year high in February, while building permits soared to a 13-year high in January. Actual sales of new homes in the United States also reached their best levels since 2007 in January, hitting an annualized pace of 764,000. All of it drives consumers and homebuilders to hardware stores.
More of the same is apt to be on the way too. The Federal Reserve just announced an emergency cut in the Fed Funds Rate, lowering its target range by 50 basis points in response to the potential adverse effects of the novel coronavirus outbreak. That, in turn, has pushed mortgage rates to near the all-time lows seen in 2012, which keeps home-investing an attractive proposition for most consumers. Home Depot benefits from that home-investment enthusiasm. The company's market cap currently hovers around $259 billion and its P/E ratio stands at 23.2. That's not exactly a bargain for a value investor, but it is if you consider Home Depot to be a growth stock.
3. Adobe (ADBE)
Finally, add Adobe (ADBE -2.37%) to your list of large-cap stocks to buy in March following what was a rare, market-driven stumble from the stock in February. From high to low, shares gave up about 11% of their value, but given the 48% advance they logged between October's low and February's high -- and how vulnerable that move made the stock -- the stumble is nothing. The stock's recovery effort thus far is also going well.
The sustained interest reflects a shift in Adobe's strategy. It still sells the Acrobat/PDF and Photoshop software that made it a powerhouse, but it doesn't just sell it like it used to. Like so many other software developers, Adobe is shifting toward cloud-based access to its tech that's sold on a subscription basis. The model drives recurring revenue that makes the company's results relatively predictable for shareholders.
And its customers love the approach. Analysts project this year's revenue to grow by nearly 18%, followed by almost a 16% improvement next year. Earnings are expected to improve at an even stronger clip of 24.6% and 18.6%, respectively, as more scale means better margins. Adobe only has to create or update its software once, but can sell it as often as it wants, creating additional production expenses. The stock has a market cap of $174 billion and its P/E ratio of 59.8 suggests the growth stock is trading at a premium, even after its recent sell-off.
