In the coming days, many American can expect to receive their $1,200 stimulus checks from the IRS. Those checks are part of the “Coronavirus Aid, Relief and Economic Security Act” or CARES Act we’ve all heard about.
As Michael Clark, PhD, associate director of the Center for Business and Economic Research at University of Kentucky, wrote in an email to InvestorPlace, “Financial stimulus can be a useful tool to help industries affected by the coronavirus recover, but there are also costs that should be considered. Stimulus provides businesses with financial resources to help maintain some level of operations. These businesses are then in a better position to ramp up production once the situation improves then they would be if they had to shut down completely.”
But the CARES Act is so much more. As the Covid-19 pandemic continues to spread and wreak havoc on the economy, the bill offers plenty of implications for a variety of sectors, corporations and consumers.
The biggest winners could be savvy investors who make plays to cash in on the bill’s potential.
For starters, the CARES Act provides plenty of needed cash for medical supplies and hospitals. That’s more than $127 billion which will go towards COVID-19 expenses, money for needed supplies, vaccine development and even a provision that eliminates a scheduled $8 billion reduction of Medicaid funds to hospitals. The best part is that this money — unlike the airline bailouts included in the bil — doesn’t come tied to provisions eliminating dividends and buybacks.
At the same time, the stimulus money is designed to help Americans get through the crisis, pay bill their bills and essentially keep spending going. This could be a boon to consumer product firms operating under the guise of necessities.
Now, there can be some negatives. As Clark wrote, “Providing financial assistance to industries can encourage them to take on an undesirable amount of risk because they believe a bailout will protect them. This essentially shifts the burden of this risk to tax payers.”
But in general, the stimulus should provide much-needed support for companies and individuals. With that in mind, some of the best plays of the CARES Act could include:
- Walmart (NYSE:WMT)
- Becton Dickinson (NYSE:BDX)
- Church & Dwight (NYSE:CHD)
- Ventas (NYSE:VTR)
- Johnson & Johnson (NYSE:JNJ)
With the CARES Act becoming law and money working its way into the hands of the people/corporations that need funding, there’s plenty of opportunities for our portfolios.
The main crux of the stimulus checks, expanded unemployment benefits and other such provisions in the CARES act is to keep the consumer economy going. Amid the chaos from the coronavirus, Walmart is uniquely positioned to profit.
For one thing, WMT is known as the low-cost grocery leader. During times of duress, the retailer tends to see a huge spike in sales as consumers look to save money. During dark days of 2008, Walmart saw store sales rise 2.9%. This came as other retailer rivals like Target (NYSE:TGT) saw declining sales. There’s no reason this trend shouldn’t hold true for the current market malaise.
Secondly, WMT is positioned to take advantage of the move to online and “click & collect” shopping. Over the last few years, Walmart has beefed up its online and omnichannel operations. This has included its grocery pick-up scheme and no-contact pick-up towers. Over the first quarter of 2020, the firm’s Grocery app saw downloads surge 460% as consumers gravitated towards these service during the pandemic. You can get your shopping done without having to actually step into a store. Meanwhile, regular online sales have continued to grow, jumping 35% in its last reported quarter.
There’s a good chance that consumers will stick with the grocery service and continue online shopping once the pandemic surpasses. Simply, they’ll get hooked on the convenience. I know I am.
With the CARES Act providing direct payments to Americans, Walmart should be positioned to make the most of consumer spending. It has both online and in-store avenues covered.
Becton Dickinson (BDX)
The COVID-19 crisis has spurred a run on medical supplies as patients inundate hospitals. That’s right up Becton Dickinson’s alley.
BDX is one of the largest suppliers and producers of medical devices. Their vast product catalog spans everything from insulin needles and catheters to more advanced regional anesthesia and drug delivery products.
These sterile single-use products continue to see sharp increases in demand as hospitals work diligently to treat the surge in coronavirus cases. And the CARES Act provides funding for these supplies.
The steady revenue from this demand is enough to take a look at BDX. But the firm has another avenue to consider — COVID-19 testing.
It’s no secret that one of the biggest issues with the current outbreak in the U.S. remains the lack of testing. BDX may have that problem solved. Along with partner BioGX, the firm recently received emergency FDA approval for a rapid COVID-19 test. The test is designed to deliver results in about 15 minutes utilizing a blood sample. The test could be a game changer for the crisis, and could allow for early detection.
For investors, the sudden surge of demand for the company’s basic products coupled with the lucrative potential of COVID-19 testing could help eliminate the recent issues BDX has had with its Alaris infusion device software. That lowered guidance may be turn into a big beat on the CARES Act and increases to demand.
Church & Dwight (CHD)
For many people, the CARES Act direct payments are about keeping the lights on, food in their bellies and lives intact until the economy get back to normal. To that end, for many people, the stimulus cash will be about staples and not luxuries. It’s here that Church & Dwight can shine.
Church & Dwight’s corporate name might not be as well-known as other consumer staples giants like Procter & Gamble (NYSE:PG), but its products certainly are. They include Arm & Hammer baking soda, OxiClean stain-fighting solutions and Trojan condoms.
The key here is that many of CHD’s brands are not considered premium priced goods. Teeth need to be brushed and our clothes need to be washed no matter the economic environment or a consumer’s discretionary income.
During the Great Recession, many consumers migrated down to CHD’s lower-priced products. What was great for investors is that those consumers stayed there.
Since the end of the last recession, CHD’s sales have basically doubled, clocking in at $4.35 billion last year. While management has guided cautiously for the rest of this year due to coronavirus concerns, analysts are still predicting a decent sales gain for the full year.
At the same time, as the economy remains in trouble, a different batch of consumers will start seriously considering Church’s stable of lower-priced brands, not just in stores, but online as well.
With strong cash flow growth, dividends and a lower-priced product portfolio, Church & Dwight could be the best consumer staples stock to play the CARES Act amid heightened focus on basic necessities.
Johnson & Johnson
A big portion of the CARES Act goes towards spending in order to make a vaccine for the coronavirus. The issue at hand is that, even if the current outbreak dissipates, it’ll comeback in future years. That means developing medicines to not only treat, but prevent future outbreaks is vital. For Johnson & Johnson that could mean another goldmine of future profits.
Through a partnership with Biomedical Advanced Research and Development Authority (BARDA), JNJ is spending $1 billion to develop a new coronavirus vaccine. The firm is already ahead of many rivals, as its been able to pivot research from another project on SARS-related infections.
That has allowed to Johnson & Johnson to step to the head of the line regarding a vaccine. Better yet, JNJ has mentioned that it plans to expand manufacturing capacity to deliver over a billion doses. This will allow it rapidly get the vaccine out into the public as soon as human trials finish.
Perhaps the ultimate win for JNJ is that the CARES Act will help pay the costs of developing the vaccine. This will only juice the firm’s profit margins. Given that early estimates indicate the vaccine could fetch around $800 per dose, and that’ll go a long way toward paying JNJ’s legal fees, and toward its bottom line.
And considering that Johnson & Johnson recently beat on sales and earnings, plus upped its dividend, CARES Act vaccine news only strengthens its position further.
One of the biggest problems of the pandemic boils down to the pressures and costs facing hospitals, medical facilities and even senior living centers. It’s been tough to grapple with rising expenses due to the disease.
The CARES Act includes a hefty amount of cash for reimbursement and perhaps more importantly, kicks the can on a resetting of Medicare prices for hospitals and assisted living centers. This could help the recently struggling Ventas.
VTR is one of the largest owners of medical real estate. That includes senior housing facilities, medical office buildings and hospitals, as well as research/biotech offices and long-term care facilities.
All in all, Ventas owns nearly 1200 different medical-related properties. The vast bulk of that portfolio has been performing well, but there have some hiccups in the senior/assisted living side of the equation. That’s hurt earnings in recent quarters.
The silver lining comes from the CARES Act. With the Medicare extension and other money for hospitals, users of Ventas’ properties should have no problems paying their rent. That’s great news for the REIT and should support its juicy 9.5% dividend. This is especially true as there has been some worries about the coverage ratio.
In the end, VTR isn’t risk-free, but the odds are still good that the firm will keep its dividend going.
Disclosure: At the time of writing, Aaron Levitt was long AMZN stock.