No matter which side of the political divide you are on, it's hard to disagree that US President Joseph Biden's $ 1.9 trillion stimulus package will create winners and losers in the wider economy. and in the stock market.
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Many companies will see their sales increase as the new round of fiscal aid and extended unemployment benefits reaches millions of Americans. Some could spend this money traveling, dining out, or starting home improvement projects when the economy fully opens up again.
Another factor leading to market winners (and losers) is the growing trend of equity investing during this pandemic. US stimulus controls could fuel about $ 170 billion in retail inflow into the stock market, Deutsche Bank strategists wrote in a note last month. A survey of retail investors found that respondents planned to put 37% of their stimulus money directly into stocks, the note said.
“Retail sentiment remains positive across the board regardless of age, income or when the investor started trading. Retail investors say they expect to maintain or expand their stock holdings even when the economy opens up again. "
That said, long-term investors should avoid investing in speculative stocks and instead put their extra money into solid companies that have a track record of rewarding investors. With this theme in mind, we've shortlisted three stocks below that fit this strategy well:
1. JPMorgan & Chase
Banks had a great run since last summer. In an environment where the government is spending record amounts of cash to stimulate the economy, there are multiple reasons to be optimistic about these financial institutions.
First, rising bond yields mean they can earn a better interest rate differential on their loans to consumers and businesses. The favorable trend of the yield curve, with long-term interest rates rising faster than short-term interest rates, is likely to continue as a result of higher consumer spending, fueling inflation. In addition, the reopening of the economy will lead to increased demand for credit from the companies affected by the pandemic.
In the banking world, we love JPMorgan Chase (NYSE :), the largest US-based lender for its and the quality of its operations. While the JPM stock is up more than 50% since September when we recommended it as a buy, there is still more room to run for this rally.
JPMorgan Chase Weekly Chart.
Although banks still cannot increase their dividends above what they paid in the second quarter of 2020, the Fed has allowed them to resume share buybacks from December onwards. JPMorgan has initiated a new $ 30 billion buyback program while maintaining its dividend of $ 0.90 per share for a 2.6% return.
2. Walmart
Consumer value and discount retailers are also among the stocks that could continue to benefit if consumers have more money to spend. In this group, Walmart (NYSE 🙂 is our first choice.
This retailer's stock in big boxes has underperformed this year after a strong run since the pandemic crash last year. But this weakness is, in our opinion, a buying opportunity for long-term investors.
The Bentonville, Arkansas-based vendor has consistently shown, through his, that it is a favorite place for consumers to spend their promotional money. While Walmart expects a return to more normal business patterns in 2021, it is venturing into new areas such as advertising and web marketplaces to take advantage of its massive customer base.
The retailer is expanding its digital media unit, recently renamed Walmart Connect. It will target ads on ecommerce platforms such as Walmart.com and the Walmart app to buyers who buy in real time.
With its e-commerce momentum and strong core physical businesses, we believe WMT is a long-term gamble to earn both capital appreciation and steadily growing dividends, which currently yield 1.72%.
3. Nike
The largest sportswear manufacturer in the world, Nike (NYSE :), is another solid company well positioned to benefit consumers with extra money.
Nike Weekly Chart.
Widespread lockdowns, the cancellation of sporting events and a sharp economic downturn have created a perfect storm for retailers like Nike in the last 12 months. But the company recently showed that the retailer is coming back quite strongly, helped by its successful e-commerce strategy. The company's digital revenues were up 84% in the quarter ended November 30.
Nike is one of those companies whose massive investments in technology paid off during the pandemic and who are transforming their business to become leaner and more profitable.
Physical retailers closed to pedestrians during the first round of incentives last year could see more benefits after this new incentive as consumers look for new athletic shoes in the warmer months. In November, Nike raised its full-year outlook for sales, now expecting growth on a percentage basis that is in the low teens. It also expects improved profit margins.
