Over the weekend, the New York Times ran an interesting article that leveraged credit and debit card data from Earnest Research to analyze how the novel coronavirus pandemic has impacted consumer spending. Spoiler alert: there have been some big changes.
Naturally, as an investor and financial analyst, my first response to reading the piece was to conjure up a list of consumer stocks to buy based on the data.
But here’s the twist: I didn’t come up with a list of consumer stocks to buy to play panic consumer buying trends. Instead, I came up with a list of consumer stocks to buy once the coronavirus pandemic passes.
Why? Because it increasingly appears that the coronavirus pandemic globally is on the decline. New cases in the U.S. and throughout most of Europe are starting to plateau, and/or are already falling. My modeling suggests that we will hit near-zero transmission by May. Thereafter, the economy should “re-open” and consumer behavior should gradually start to normalize.
For me, then, the investment implication today is simple. Buy high-quality, beaten-up consumer stocks that will rebound once consumer behavior returns to normal.
With that in mind, here’s a list of beaten-up consumer stocks to buy as the coronavirus pandemic passes:
- McDonald’s (NYSE:MCD)
- Chipotle (NYSE:CMG)
- Starbucks (NASDAQ:SBUX)
- Shake Shack (NYSE:SHAK)
- Nike (NYSE:NKE)
- Lululemon (NASDAQ:LULU)
- Skechers (NYSE:SKX)
- Under Armour (NYSE:UAA)
- Urban Outfitters (NASDAQ:URBN)
- Best Buy (NASDAQ:BBY)
- Ulta Beauty (NASDAQ:ULTA)
- Five Below (NASDAQ:FIVE)
- L Brands (NYSE:LB)
- Planet Fitness (NYSE:PLNT)
- Live Nation (NYSE:LYV)
- Uber (NYSE:UBER)
- Lyft (NASDAQ:LYFT)
- Cinemark (NYSE:CNK)
- Disney (NYSE:DIS)
- Tesla (NASDAQ:TSLA)
- Ford (NYSE:F)
- AT&T (NYSE:T)
- Verizon (NYSE:VZ)
- Carnival (NYSE:CCL)
- Cedar Fair (NYSE:FUN)
- Hilton (NYSE:HLT)
- Adobe (NASDAQ:ADBE)
- Square (NYSE:SQ)
- Stitch Fix (NASDAQ:SFIX)
- Chegg (NASDAQ:CHGG)
Let’s take a closer look into what makes each of these promising stocks to buy.
Consumer Stocks to Buy Once the Pandemic Passes: McDonald’s (MCD)
As consumers have been told to “stay at home” over the past few weeks, they have peeled back their spend on fast food. According to NYT data, consumer spend on fast food dropped more than 25% in the last week of March.
This won’t last forever. Once the virus passes and the economy “re-opens,” consumers will go back to fast food restaurants. And when they do, one that they will go to with great frequency is McDonald’s.
That’s because McDonald’s dominates on the two things that matter most in the fast food world: convenience and price. The company has over 38,000 locations across the globe, and for many consumers, the nearest McDonald’s is just around the corner. Meanwhile, the company continues to offer some of the lowest prices in the industry.
The coronavirus won’t change consumer attraction to low prices and high convenience. As such, it won’t change consumer attraction to McDonald’s. Look for MCD stock to bounce back as the pandemic passes over the next few months.
Another fast food stock that will bounce back as the virus passes is Chipotle.
Chipotle was on a red-hot turnaround before the pandemic. New management was successfully leveraging menu innovations, digital business expansion, and unique marketing to drive huge comparable sales growth. CMG stock was on fire, roaring to new highs.
Then, the coronavirus pandemic hit. The turnaround came to a standstill. CMG stock crashed.
Once the pandemic passes, the turnaround will resume. Chipotle will continue to add exciting new items to its menu. Management will continue to expand the digital business, and drive unique marketing campaigns across television and social media.
As all that happens, comparable sales will rebound back to pre-coronavirus levels, and CMG stock will bounce back.
Yet another fast food stock due for a big rebound once the pandemic passes is Starbucks.
Consumers love coffee. Their love for coffee did not change because of the coronavirus pandemic. Once the pandemic is under control, then, and consumers get back to work, they will resume their morning Starbucks runs. And maybe the afternoon Starbucks runs, too.
This “traffic normalization” is more that just speculation. Starbucks management recently stated that its China comparable sales trends have been steadily improving for the past seven weeks as daily life in that country is gradually returning to normal. Management expects China stores to be back at full sales capacity in two quarters.
A similar rebound will materialize in the U.S. That puts Starbucks on track to have significantly improving traffic trends in the back-half of 2020, the likes of which will spark a big rebound in SBUX stock.
Shake Shack (SHAK)
The last fast food stock on this list of consumer stocks to buy is Shake Shack.
Shake Shack has been disproportionately impacted by the coronavirus pandemic given its huge exposure to the New York market. That is, a lot of Shake Shack stores are in the greater New York City area, and those stores are among Shake Shack’s best performing stores, too. New York has been hit extra hard by the coronavirus. So has Shake Shack.
But, a big rebound is on the way.
New York is already seeing new cases in the state start to level off and even decline some. Things will only get better from here. The state appears committed to re-opening its economy in the near future. Once the economy does re-open, Shake Shack stores will begin their recovery process.
That recovery process will take time. But, inevitably, it will drive SHAK stock higher in the back-half of 2020, mostly because the stock is priced for death here and now (and death isn’t gong to happen).
Not surprisingly, consumers have decreased their spend on apparel items during the pandemic. According to NYT data, consumer spend on apparel dropped more than 50% in the last week of March.
That’s bad news for Nike. But here’s the good news: the coronavirus pandemic isn’t permanent, consumer apparel spend will bounce back and Nike is still the hottest brand in apparel retail.
The coronavirus pandemic is already plateauing and starting to decline. Assuming this trajectory persists, the U.S. and Europe are looking at near-zero transmission within the next few months. The economy will re-open if this becomes a reality. Then, pent-up consumer demand will turn into robust consumer discretionary spend, including robust apparel spend. And a lot of those dollars will be spent on Nike clothes and shoes, because Nike remains the top clothing and footwear brand in the U.S.
Long story short, near-term pain for Nike, will turn into long-term gain.
Another apparel stock that looks good for a rebound is Lululemon.
Next to Nike, Lululemon is arguably one of the hottest names in retail right now. Coming into the pandemic, the company was leveraging secular athletic apparel tailwinds and top-quality products to consistently drive 10%-plus comparable sales growth. A lot of this growth was coming from increased share in the women’s market. Some of it was also coming from attracting new male customers to the brand.
Once pent-up consumer demand turns into robust apparel spend by summer, then, Lululemon should see a huge rebound in its sales.
That huge rebound should spark an equally large rebound in LULU stock, which is still 25% off its pre-coronavirus highs.
Staying in the athletic world, another apparel stock that is positioned for a big second-half rebound is Skechers.
Skechers is often laughed at as the “other guy” in the athletic apparel world. In many regards, Skechers is exactly that. But that’s not a bad thing. While everyone else is competing to be the coolest athletic apparel brand, Skechers is dominating the utility niche. That is, the brand is the best-in-breed when it comes to making comfortable athletic shoes at affordable prices.
That niche isn’t all that small — especially internationally. That’s why, coming into the pandemic, Skechers was growing revenues faster than pretty much all of its athletic apparel peers. Robust international demand for comfortable athletic shoes at affordable prices, was driving huge international sales growth for Skechers.
Sure, the coronavirus pandemic put that big growth narrative on hold. But it didn’t altogether kill that narrative. Once the virus passes, Skechers’ big international growth narrative will resume, and SKX stock (which is dirt cheap for an athletic apparel company growing revenues at a 10%-plus rate) will bounce back.
Under Armour (UAA)
The ugly duckling in the athletic apparel space — Under Armour — appears primed for arguably the biggest rebound in the sector once the coronavirus pandemic passes.
Under Armour has long struggled to compete in the red-hot athletic apparel space. Management took some missteps with pushing too much product into low-priced selling channels, which diluted brand equity and hurt the company’s ability to sell premium product at high prices. Among other things, this has led to sluggish sales and margin performance at Under Armour for years.
But, before the pandemic, it appeared that Under Armour had an opportunity to turn the corner. Inventory levels had come down to a point where Under Armour had the flexibility to invest in new product and test new selling channels.
Unfortunately, the coronavirus pandemic put this potential turnaround on hold. Fortunately for dip-buyers, though, it has plunged UAA stock to its lowest level in five years.
At current levels, the stock appears woefully undervalued. Any improvement in financial trend — which should come in the second-half of 2020 — will spark a big rebound in UAA stock.
Urban Outfitters (URBN)
The only mall apparel stock on this list of consumer stocks to buy is Urban Outfitters.
That’s because, from where I sit, Urban Outfitters is a standout in the mall apparel category. Many other mall apparel names have struggled to adapt to omni-channel commerce, don’t have strong brand equity, have huge physical store footprints and have debt-loaded balance sheets.
Urban Outfitters is the opposite.
Urban Outfitters’ digital business is robust. Brand equity is high, especially at the premium-end Free People store. The physical store footprint is relatively small. And there’s no debt on the balance sheet.
In other words, while most mall apparel stocks don’t look good here and now, URBN stock does.
Best Buy (BBY)
Best Buy stock has been killed amid the coronavirus pandemic. Shares have lost about 25% of their value.
This pain is fleeting. Eventually, the coronavirus pandemic will pass. When it does, consumer behavior should normalize. Consumers will eventually get back to spending big on consumer tech products in the back-half of 2020, like 5G smartphones, new video game consoles and streaming devices like Roku (NASDAQ:ROKU).
This rebound in consumer tech spending will converge with what has become a massively discounted valuation on BBY stock — just 11.5-times forward earnings — to spark a big second-half rally in shares.
I’d be a buyer before that big rally.
Ulta Beauty (ULTA)
Alongside Best Buy, another consumer discretionary retail stock that looks primed for a big second-half rebound is Ulta Beauty.
Ulta is the cream-of-the-crop in the cosmetics retail industry. Yes, there’s a lot of competition from mall department stores. But Ulta has successfully fended off that competition over the past several years with exclusive, direct-to-consumer brand launches, and has leveraged those exclusive product launches to develop second-to-none brand equity.
In the bigger picture, the cosmetics retail industry is a secular growth one. Thanks to the widespread usage of visual-first digital media apps, consumers are hyper-concerned with their physical appearance. This trend isn’t going to change because of the coronavirus. Once the virus passes and consumers start going to work and socializing again, demand for cosmetics product will pick back up.
When it does, Ulta Beauty’s sales trends will rebound. So will beaten-up ULTA stock.
Five Below (FIVE)
Another discretionary retail stock that I like for a big bounce once the coronavirus pandemic passes is Five Below.
Five Below is essentially the “kid version” of a discount general merchandise retailer. The company sells a bunch of youth-oriented products like toys, electronics, starter make-up and home decor items, all for less than $5. It’s a dream destination for kids, because it’s basically the toy section at Walmart (NYSE:WMT) blown up into a whole store. And it’s a dream destination for parents, because everything costs less than $5.
Prior to the coronavirus pandemic, Five Below was on fire. The company was rattling off steady 20%-plus revenue and profit growth, behind strong comparable sales, big unit expansion and healthy margins.
Yes, the pandemic put that growth narrative on pause. But, once the pandemic passes, Five Below could see traffic levels surge to new highs, because families will be more cautious with money given broader economic turbulence, and could therefore turn weekly Target (NYSE:TGT) toy shopping trips, into weekly Five Below shopping trips.
Consequently, I’d look for a big bounce in FIVE stock into the end of the year.
L Brands (LB)
The last discretionary retail stock on this list of consumer stocks to buy is L Brands.
The story at L Brands is a bit confusing. Big picture, L Brands is two separate brands: Victoria’s Secret and Bath & Body Works. The former has been a dud. The latter has been a stud. L Brands has worked out a deal to sell Victoria’s Secret to a private equity firm. That deal is supposedly “up in the air” because of the coronavirus pandemic.
However, I suspect it will go through. And when it does go through, LB stock will rally big.
That’s because Victoria’s Secret has been dead-weight for L Brands for several years now. Shedding that dead-weight will allow the company to focus on its surging Bath & Body Works business, improve sales trends and boost profits and cash flows.
It also helps that this deal should close over the next few months, around the same time that the retail world starts normalizing. Thus, LB stock will be boosted by two huge tailwinds over the next few months.
Planet Fitness (PLNT)
Of course, consumer spending on gyms has dried up during the coronavirus pandemic, because all gyms in the U.S. have been forced to shut down.
But … working out is still one of the biggest trends in the consumer world today. Indeed, in the absence of gyms, there has been a surge in demand for at-home fitness equipment. Just ask Nautilus (NYSE:NLS).
That at-home fitness equipment is good. It’ll do the job for now. But, for most workout enthusiasts (which is an increasingly large portion of the population), it’s not as good as the gym. Once the virus passes, then, gyms will re-open and be just as crowded as before (if not more crowded, because consumers will have pent-up demand to workout at a gym).
That’s great news for Planet Fitness. It positions PLNT stock — which has dropped 40% on coronavirus shutdown concerns — for a huge rebound rally over the next few months.
Live Nation (LYV)
Much like consumer spending on gyms, consumer spending on events and concerts has dried up over the past few weeks … and that’s because all events and concerts have been cancelled or postponed.
LiveNation — the company which handles ticketing for many of these events and concerts — has consequently seen its stock fall off a cliff. From $77 in late February. To $20 in late March.
This selloff is grossly overdone. The coronavirus pandemic will pass. Concerts and events will be re-scheduled. Consumers, who have been cooped up inside for weeks, will flock to these rescheduled concerts and events. LiveNation’s financial trends will meaningfully recover in the second-half of 2020.
As all that happens, LYV stock will bounce back.
The ride-sharing market has been killed by the coronavirus pandemic. According to NYT data, consumer spend on ride-sharing services dropped more than 75% in the last week of March.
This weakness is temporary.
In the long-term, consumer love for the convenience of ride-sharing, will significantly outweigh consumer fear about getting sick by being in close proximity to a stranger. The former is an enduring value prop. The latter is an ephemeral fear.
As such, ride-sharing giant Uber — which has seen its stock price cut in half by the coronavirus — will see demand trends normalize over the next few months as the virus (and related consumer hysteria) fades. At the same time, the company’s Uber Eats food delivery business will help stabilize financials through the current storm.
Much like Uber, Lyft has seen its business and stock price fall off a cliff during the coronavirus pandemic.
Also much like Uber, Lyft will see its business and stock price rebound with significant momentum in the second-half of 2020, as the virus and related consumer hysteria fades, and ride-sharing demand normalizes.
The attractive thing about LYFT stock is that the company has been on winning side of a market share war in ride-sharing.
That is, for the past several years, Uber has ceded ride-sharing market share. Lyft has gained it. So long as this market share expansion dynamic persists, Lyft will have more firepower when the market rebounds.
Movie theaters everywhere are closed. That’s the bad news for Cinemark, and it explains why CNK stock is down about 70% from its February highs.
The good news, though, is that the coronavirus is temporary. Once the virus passes, consumers will go back to the movies.
Why? Because consumers like social experiences, and going to the movie theater is a social experience. Once the virus passes, then, consumers will gradually start going to the movie theater again for the social experience value. As lingering fears about getting sick fade, movie theater traffic will pick-up, and start to look like how it did in early 2020.
Also, why Cinemark and not AMC (NYSE:AMC)? Because the former has a much prettier balance sheet, and is much more likely to make it through the current crisis without filing for bankruptcy.
So, if you’re looking to buy a movie theater stock amid the current pandemic, I’d say go with CNK stock.
Along the same lines that consumers will go back to movie theaters for the social experience value, they will also go back to theme parks for the same reason.
That’s great news for Disney. Right now, the media giant has closed all of its parks, and its box office business is dragging thanks to movie theater closures.
However, by the third and fourth quarters of 2020, those theme parks and movie theaters will be open. Both will have moderate traffic. Disney’s financial trends will tick higher.
So will DIS stock — especially since the company’s true growth business, Disney+, is on fire right now.
Naturally, the auto market has come to a screeching halt in the midst of the coronavirus pandemic. But, the auto market’s hottest company — Tesla — still managed to post its best first quarter ever, producing almost 103,000 vehicles and delivering 88,400 vehicles.
Tesla’s sustained strength against the backdrop of a global economy that has closed down speaks to this company’s unnerving, secular demand drivers. Those drivers include pent-up consumer demand for electric vehicles, Tesla’s second-to-none brand equity and production capability in the electric vehicle space, and new vehicle launches from Tesla, headlined by the Model Y and Cybertruck.
In other words, the Tesla growth narrative is just fine. It will survive the coronavirus, and thrive long after the virus passes.
As such, current weakness in TSLA stock is temporary. Buy the dip. Let secular tailwinds take this stock way higher over the next several years.
Another auto stock that I like for a second-half rebound is Ford.
Yes, Ford is getting its butt kicked by Tesla. Yes, the company has struggled to sell cars amid changing consumer demand. The company’s profits are also being squeezed.
But, all of that is about to change over the next few years.
Specifically, Ford is finally going “all in” with electric vehicles. Over the next few years, the company will launch a series of electric vehicles, the sum of which will finally position Ford to capitalize on rising electric vehicle demand. This huge pivot will improve Ford’s revenue trends, provide a boost to margins and spark a significant upturn in profits.
As that happens, dirt-cheap Ford stock will finally stage a sustainable turnaround rally.
Interestingly enough, consumer spending on mobile phone plans has been hit by the coronavirus pandemic. According to NYT data, spending in the mobile category dropped in the last week of March.
That’s not great news for AT&T. But, it’s also immaterial next to what’s coming soon for this company.
Coming soon, AT&T will push forward a new era of 5G communications, marked by the company selling a ton of 5G smartphones in the second-half of 2020 and seeing a huge uptick in demand for its 5G coverage plans.
Assuming the coronavirus passes by the summer — which it should — then AT&T is shaping up to have a really strong second-half performance. Also boosting the company’s second-half turnaround will be the launch and expansion of HBO Max, AT&T’s new, all-in-one streaming service.
All things considered, then, AT&T stock looks attractive here, at 9-times forward earnings with huge catalysts on the horizon.
Lather, rinse, repeat. The same reasons you would buy AT&T stock here and now, are the same reasons you would buy Verizon stock.
Verizon has huge 5G catalysts on the horizon. Those catalysts won’t really materialize until the second-half of 2020, when a swarm of 5G smartphones (headlined by the 5G iPhone) launch. Around the same time, the coronavirus pandemic should be nothing more than a memory, and the economy should be in rebound mode.
All of that means that Verizon is positioned to have a strong 2H20. Heading into that strong second-half, VZ stock trades at just 11.8-times forward earnings.
That’s an attractive combination which should lead to out-performance in VZ stock.
Arguably the most controversial name on this list of consumer stocks to buy, Carnival has been the most damaged by the coronavirus pandemic. For a few reasons.
First, cruises everywhere have been shut down. Second, the company is significantly levered, with huge fixed operating costs. Third, the coronavirus pandemic has been a PR nightmare for Carnival, with many consumers now affiliating the outbreak with cruises. This affiliation means that the cruise industry could take much longer to rebound than other industries.
Still, CCL stock looks like a buy here because it’s simply too cheap for its own good.
Coming into the year, this was a $50 stock. Today, shares trade around $10. Sure, demand will be depressed for probably the next 12 to 24 months. But, it won’t be depressed by 80%. Instead, I think the new “normal” for Carnival will likely end up being around 80% to 90% of what normal was in early 2020.
My numbers suggest, then, that CCL stock is more fairly valued around $20 and up. As such, for investors who believe that the cruise industry is not dead, CCL stock is a compelling opportunity here.
Cedar Fair (FUN)
Much like cruise stocks, theme park stocks have been hammered amid the coronavirus pandemic because they are what many would consider to be “high risk” environments for virus transmission (i.e., you have a bunch of people, crowded together, in one park, riding the same rides and touching the same rails).
So long as consumers remain afraid of getting the virus, then, theme parks won’t have strong demand, even after they re-open.
I don’t think that will be for long. My best guess is that the virus largely “stomps out” by May/June. Theme parks re-open in the summer. Consumers gradually forget about the virus by late summer / early fall. Theme park attendance rapidly normalizes in the third and fourth quarters. Theme park stocks bounce back.
My favorite name in the group? Cedar Fair. For three reasons.
First, the company is well-capitalized. I don’t see insolvency as a risk. Two, the theme park operator was on fire heading into the pandemic. I presume this momentum will recover once attendance trends normalize. Three, Cedar Fair is a regional operator, and regional operators will bounce-back before national operators because the former doesn’t require its guests to hop on a plane to get there.
Alongside cruise stocks and theme park stocks, hotel stocks have similarly been slammed by a catastrophic drop in travel spend amid the coronavirus pandemic.
This, too, won’t last forever.
In our increasingly connected world, consumers have developed a robust appetite to see the world. They want to travel to Rome and see the Coliseum, and they want to post Instagram photos of them in the Caribbean. This robust appetite will be dampened somewhat by the coronavirus pandemic. But, any and all negative impacts will be short-lived. They will fade as fears of getting sick fade.
Once they do fade, robust travel appetite will power a rebound in the travel sector. This will lead to a big rebound in hotel stocks, of which Hilton is the cream of the crop.
According to NYT data, consumer spend on internet services like Zoom (NASDAQ:ZM) and Adobe has actually dropped during the coronavirus pandemic.
This won’t last long. Especially for Adobe.
Adobe is the global leader in providing consumers creative media solutions. Want to create a video? Edit a video? Enhance a photo? Adobe offers best-in-breed solutions to do all of those things. And much more.
Consumer demand for those services is robust in today’s visually dominated media world. It will remain robust for the foreseeable future. Adobe will keep selling a ton of consumer subscriptions over the next few years. In addition, the company will continue to grow its enterprise business, behind expansion in the company’s experience cloud business.
Net net, Adobe is a long-term winner. Today’s pain is ephemeral. Buy the dip. Hold for the long haul.
One high quality technology stock that has been butchered amid the coronavirus pandemic is Square. SQ stock is down almost 30% from its February highs.
That’s because Square has broad exposure to small-to-medium sized businesses (SMBs), who are disproportionately impacted by the pandemic given their reliance on physical sales.
Still, the SMB world isn’t going to altogether die. The government and central bank have injected sufficient liquidity to help these SMBs survive the coronavirus crisis. Once the crisis passes, these SMBs will re-open shop. Traffic and sales trends will improve. All will be well in the SMB kingdom.
That means all will be well over at Square, a company that has essentially turned into the payment technology backbone of SMBs.
As such, today’s weakness won’t last. Square’s growth trends will bounce back with resurgent SMBs in the second-half of 2020. SQ stock will bounce back, too.
Stitch Fix (SFIX)
As mentioned earlier, consumer spending on apparel has fallen off a cliff amid the coronavirus pandemic.
That’s bad news for Stitch Fix, an online personalized apparel styling service who recently reported quarterly numbers that implied that business is not booming.
But business will boom again — soon — once the coronavirus pandemic fades and infinite liquidity unleashes pent-up consumer demand, and turns it into robust consumer discretionary spend.
As such, I see apparel spending picking up dramatically in the back-half of the year. That should lead to a rebound in Stitch Fix’s growth trends, which should power a nice rebound in beaten-up and pretty cheap SFIX stock.
Last, but certainly not least, on this list of consumer stocks to buy is digital education company Chegg.
Chegg provides the world’s best connected learning platform, which offers high school and college students on-demand, digital services like e-textbooks, step-by-step solutions, tutoring, test prep, writing help and much more. These services are seeing growing demand because students are increasingly pivoting away from legacy academic resource tools (like physical textbooks and in-person tutoring) to more relevant, modern academic resource tools.
This pivot is still in its infancy. So is the Chegg growth narrative.
Over the next several years, the academic world will become increasingly digitized. As that happens, more and more students will turn towards Chegg’s best-in-breed connected learning platform. Chegg’s subscriber base will boom. Revenues will roar higher. So will profits. And the stock price.
From this perspective, Chegg is a long-term winner. Any and all coronavirus-related weakness is nothing more than a buying opportunity.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long SBUX, SHAK, TSLA, ADBE, SQ, SFIX, CHGG and ROKU.