What are the best stocks to buy as the market recovers from the COVID-19 pandemic?
The COVID-19 pandemic has changed the world. Face masks became a way to express yourself, shopping online has become the norm for the masses, travel all but died, children experienced school at home rather than in classrooms, and adults are moving to working remotely with shocking speed.
Some of these adaptations will prove to be nothing more than short-term changes in behavior and trends. Others are here to stay.
The stock market, too, has been on a wild ride. Parts of the economy were closed, revenues for some companies all but ceased, and investors reacted with a selloff, sending stock prices plummeting in just about every sector except health care. While some stocks, especially tech stocks and a handful of meme stocks, have made nearly a full recovery, many sectors of the market continue to struggle.
There’s Good News Nearly Every Week
On the other hand, the novel coronavirus has also showcased the power of the human mind and our ingenuity in the face of a novel danger.
As the pandemic took hold and lockdowns were set in place, the world’s smartest minds immediately began working to develop vaccines and treatments with the potential to slow the spread of COVID-19. Working at a lightning pace, these scientists have done something never seen before.
In a matter of months, they went from nothing to drug candidates and clinical trials, and vaccines hit the market in less than a year. This is a process that normally takes years, often more than a decade.
As vaccines make their way into arms, the world is slowly getting back to normal. So, with a little luck, the crisis may be in the past faster than we once thought possible.
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This Good News Creates Compelling Investment Opportunities
Sure, the past year was rough, but with vaccines being distributed and the world finding a state of normalcy, several compelling investing opportunities are being created. Today, consumers are starting to feel more comfortable going back to their daily routines.
And with comfort will come spending.
Consumers who have been stuck in their homes, unable to travel, visit friends and family, and enjoy comforts like movie theaters and restaurants, will soon be able to do these things. As such, a cooped-up population of consumers will be ready to, well, fly the coop.
As this happens, spending will increase, creating growing revenues and profits for the downtrodden industries hit hardest by the pandemic, which will provide exciting opportunities for investors to play the rebound.
Moreover, with the United States Federal Reserve — also known simply as the Fed — maintaining low interest rates and bond buying programs for at least the next year to ease the economic burden, resistance has all but disappeared from the market, leading to prices trending in the positive direction in one of the fastest recoveries in market history.
Of course, fast-paced markets are riddled with volatility. So, choosing the right stocks to invest in, rather than blindly throwing money around, is crucial.
Stocks to Buy for a COVID-19 Stock Market Recovery
Although many corners of the stock market as a whole will likely see dramatic gains as the COVID-19 pandemic becomes a thing of the past, not all stocks are created equal. Even in the potential rally that’s likely ahead in various categories, as a global recovery takes place, there will be companies that win and those that lose.
So, it’s just as important now to make the right moves in the market as it has ever been.
Nonetheless, making the right investments in today’s environment has the potential to be overwhelmingly lucrative. Below are a few names that you should consider as you look for stocks that are likely to benefit most from a COVID-19 recovery.
1. Southwest Airlines (NYSE: LUV)
The airline industry has been one of the hardest hit corners of the stock market, and for good reason. Consumers were told to stay home as the coronavirus pandemic took hold. You were told that the more you left your home, the more likely you were to come down with a deadly illness, and that travel should be limited to necessities and nothing more.
If you’re like the vast majority of Americans, traveling on an airplane, packed into a metal cylinder with hundreds of other passengers breathing recycled air, was simply out of the question.
With COVID-19 vaccines now available and widely used, consumers are going to be itching to get away from home and enjoy their vacations again. This has resulted in a boom in demand for air travel, making the battered airline stocks worth diving into. In fact, while it is one of the slowest to recover to date, Southwest Airlines has seen its share price climb from around $45 per share to more than $49 per share in the first 10 months of 2021.
In my humble opinion, when it comes to airlines, Southwest Airlines is the best pick due to the type of flights the company makes its money from. In 2019, before the coronavirus struck, 97% of Southwest Airlines’ revenue was generated through low-cost domestic flights.
These are the specific types of flights that will be in high demand as the COVID-19 pandemic fades away. College students will want to travel to see their parents and hometown friends, and families will want to travel to theme parks and other attractions. Couples will want to travel to the mountains for a romantic week away. The general consumer will want to get out, and when that happens, low-cost domestic flights will be in high demand.
According to Statista, Southwest Airlines is the third largest domestic airline by market share, with control of 17.4% of the market. The company is the second leading airline in the domestic flight sector of the U.S. market, behind only American Airlines with 19.3% of market share.
Historically, American Airlines and Southwest Airlines have been the premier low-cost airline solutions, yet Southwest tends to be cheaper than American. Considering the current economic environment, travelers will likely be looking for the best deal at the lowest cost. As a result, Southwest Airlines may climb from #2 to #1 by market share through the COVID-19 recovery. As such, this is a stock that should not be ignored.
2. Carnival Corporation (NYSE: CCL)
An investment in Carnival Corporation follows the same logic as an investment in Southwest Airlines. Carnival Corporation owns and manages Carnival Cruise Line, one of the largest cruise lines in the world.
According to Statista, Carnival is the largest cruise line in the world by market share, serving a massive 45% of passengers.
Like others in the travel industry, Carnival Corporation’s stock has seen a tremendous decline as a result of COVID-19. Unfortunately, by September 2020, the stock had given up more than 65% of its value.
2021 has been quite a bit better for the company, with share prices climbing from around $20 to nearly $30 from January to mid-June. Unfortunately, a second wave of COVID-19 caused fears that sent the stock back down, with it currently trading around $23 per share.
These declines represent a massive opportunity.
The market seems to be pricing Carnival Corporation stock as though the cruise-line industry isn’t going to see a comeback for years to come. The stock is trading at just over three times its cash on hand and just a fraction of its book value. That’s a ridiculously low valuation for a company that controls the lion’s share of a multibillion-dollar market.
With vaccinations taking place at lightning pace, the virus may soon be under control. Although it may take a year or so for cruise lines to be booming again, Carnival is far more valuable than the market is giving it credit for.
Not to mention, with $7.8 billion in cash on hand and more than $50 billion in total assets, the company has a strong financial foundation that will allow it to make it through these hard times and thrive on the other side.
From a fundamental standpoint, Carnival Cruise Lines represents one of the largest opportunities in the travel industry as a whole. The company controls a massive percentage of the cruise-line market, has plenty of cash on hand, and will likely benefit greatly as consumers begin to travel on the tailwinds of the COVID-19 pandemic. This is a stock that’s worth strong consideration.
3. Amazon.com (NASDAQ: AMZN)
Amazon.com has done incredibly well in the face of COVID-19. In fact, from January 2020 through October 2021, its stock price climbed by more than 90%. That’s a dramatic run for any company. In most cases, a move like that would scream “take profits.” However, we’re not talking about just any company.
Amazon is the leader in U.S. e-commerce. Many consumers didn’t feel comfortable shopping in brick-and-mortar stores during the COVID-19 crisis, so it actually gave the company a big boost in sales.
The company is also one of the leaders in cloud computing in the U.S. That has been overwhelmingly important to the ability of online companies to meet the incredible demand for bandwidth as consumers spend more time at home shopping on and surfing the web.
At the same time, cloud computing has seen significant growth in demand as companies across the U.S. have moved out of the office and begun to have their employees work from home. Amazon has been a big winner in both the e-commerce and the cloud computing spaces.
But what happens when the major threat from the virus is in the past?
Many of the changes that have taken place as a result of the pandemic will pass along with the virus. However, other changes are here to stay. For example, before COVID-19 took hold, there was a major trend toward consumers shopping online more every day. In terms of e-commerce, COVID-19 didn’t create the trend; it sped it up.
Consumers who would not have otherwise been exposed to online shopping are buying everything online these days. That’s not likely to change, even if and when COVID-19 is eradicated. As such, online shopping trends are likely to continue.
Also, many people who are working from home as a result of the pandemic aren’t going back to the office any time soon. Several large companies have realized that remote employees come with great benefits. With employees working from home, overhead office costs are lower.
Moreover, when the Internet is the office, companies are no longer limited to local talent when hiring, greatly expanding the pool of potential candidates. As a result, many believe that remote working is the way of the future for several companies, with many big names already saying that some of their workforce will never go back to the office.
That bodes well for Amazon Web Services, the company’s cloud computing solution.
Considering that both of the trends that are massive revenue drivers for Amazon are likely here to stay, the company and its investors have quite a bit to look forward to ahead. As such, Amazon stock is one to pay close attention to.
4. Clorox (NYSE: CLX)
There’s another trend the COVID-19 pandemic has likely changed for the long term — general habits around cleanliness. Ever since the virus started to circulate, you’ve been told to wash your hands, clean surfaces, wear a face mask, and be as clean as you possibly can.
It all makes sense. Face masks stop the spread of water droplets as you breathe, reducing your chances of infecting others if you’ve contracted the virus. General cleanliness kills the virus before it has the opportunity to infect you or your loved ones.
As a result, cleaning products have been flying off of the shelves for some time now. The demand for cleaning supplies is higher than ever before, and manufacturers are having a tough time keeping up.
Clorox is a consumer staples company that’s best known for its cleaning products. In fact, when you think of bleach, the company’s name is likely the first to come to mind. Of course, the pandemic has done well for the stock. From January through August, the stock grew by around 50% before growth began to taper off. Nonetheless, after a several months-long selloff, many argue that the stock is highly undervalued, representing a major opportunity.
If COVID-19 taught consumers anything, it’s the importance of cleanliness, both in terms of personal hygiene and for the home, office, and shared spaces. This is one of the changes that’s likely here to stay. Due to the virus, consumers are going to clean more often, leading to continued and increasing demand for cleaning products.
With Clorox being the leader in the space, the company is likely to see strong growth as consumers continue to clear the shelves of their branded cleaning supplies, suggesting that there’s plenty more room for growth in the stock ahead.
5. Home Depot (NYSE: HD)
This is the least obvious stock on the list, but it has earned its place in the lineup. COVID-19 has had an extreme impact on economic conditions within the United States. The last time this many Americans were out of work, the U.S. was in the depth of the Great Depression. It’s a tough time.
So, why would a building materials and tools store be a strong investment?
Well, it has to do with how tough economic times change monetary policy. In an effort to stimulate economic growth, the Fed once vowed to keep interest rates low for the foreseeable future. More recently, the Fed announced plans to discuss rate increases in the next 18 to 24 months.
Low interest rates create the perfect lending environment. Consumers want to borrow money because it’s cheap to do so, and lenders want to hand money out because they’ve got plenty of cash, thanks to loosened economic policy. It’s a match made in heaven.
When interest rates are low, we see two important trends that will have a massive positive impact on Home Depot:
- Real Estate. When rates are low, it’s a great time to buy a new home. Mortgages at rates as low as 3% lead many people to build the homes of their dreams. Of course, when there’s a lot of building going on, Home Depot benefits from the sale of building supplies and tools.
- Remodels. Again, it’s cheap to borrow money when rates are low. Large remodeling projects that seemed out of reach are now becoming more affordable. Again, this bodes well for the construction material and tools powerhouse that is Home Depot.
Interest rates aren’t the only force driving construction demand. There are two other factors driven by the COVID-19 pandemic that bode well for Home Depot:
- People Are Relocating. With so many jobs moving to remote offices, people who were once tied to a specific region can now live wherever they’d like. This is leading to what could become a mass migration, ultimately leading to more homes being built.
- Furlough and Layoff Relocation. As the crisis flared up and governments in some areas maintained shutdowns, many people remained out of work. This has led to more relocation as many families look to new areas and the job opportunities that come with a potential relocation to cities where businesses have reopened.
All of this is likely going to continue for the foreseeable future. The Federal Reserve will keep rates low to promote economic recovery, continuing growth in new construction.
At the same time, relocation associated with the ability to move away from the office and job turnover are likely to continue as well. Company owners and employees alike are realizing major benefits of remote work and may choose to set up shop someplace new.
Considering Home Depot’s leadership in construction materials and tools, and the fact that demand for these products will likely continue to climb, the stock is one that should not be ignored.
6. Zoom Video Communications (NASDAQ: ZOOM)
Zoom Video Communications is another company that got a big boost from the pandemic. The company offers video conferencing services that quickly became popular for two key reasons:
- The Work-From-Home Trend. Although many companies have moved to a work-from-home setting, communication between management and employees and among colleagues is best done in a face-to-face setting. As a result, companies looked to video conferencing services to scratch that itch.
- Family and Friends. For many, talking to family and friends on the phone just wasn’t enough during the shutdown. Although video conferencing doesn’t have the same appeal as human contact, it was the best option in a bad situation, leading many consumers to sign up for Zoom’s services.
While people are beginning to make physical contact with friends and family again, the crisis led many who live far away from each other to start using the platform, which is likely to continue. Moreover, companies who plan on maintaining the work-from-home environment have made video conferencing part of their day-to-day activities.
That bodes well for Zoom in the long-term.
As a result, the stock saw tremendous growth throughout 2020, and while those gains have tapered off a bit, the selloff is likely overblown. Investors who get in at today’s relatively low levels are likely getting a discount on tremendous future growth.
COVID-19 has been a painful experience for everyone. It has changed the shape of our lives, and will have a lasting impact on how we see the world. However, this lasting impact will create several compelling investing opportunities in the short term and in the post-pandemic world.
As always, it’s important to do your research and understand the risk vs. reward profile of any investment you make. Just because the industry a company is in will benefit in the post-COVID-19 environment doesn’t mean that the company itself will be a winner. When choosing an investment, be clear, be educated, and be profitable. You can only be those three things with proper due diligence.
Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.