Because of the delayed nature of government reports, we’re living in very unusual circumstances. A week ago, the Bureau of Economic Analysis disclosed that GDP contracted 4.8% in the first quarter. Initially, that doesn’t sound too bad considering the doom and gloom that we’ve been hearing. However, this is worse than projections calling for a 3.5% drop. Moreover, Q2 will be far worse, giving new importance to the phrase, “stocks to watch.”
For one thing, we need to set the framework. In my articles for InvestorPlace, I’ve expressed significant doubt regarding a quick economic recovery amid the destruction caused by the novel coronavirus. I’m not alone in my assessment. Prominent voices, such as economist Jason Reed, assistant chair and teaching professor of finance at the University of Notre Dame’s Mendoza College of Business, have likewise conveyed skepticism. Professor Reed writes:
“Commerce will continue to be at a standstill as long as we lack a virus, mass testing, and sufficient hospital resources. The response to these needs will shape the impending recovery, and by almost all estimates, the probability of a ‘V’ shaped recovery is almost zero.”
While waiting for official confirmation of the health of the economy is frustrating, investors have a close-to-real-time alternative: the markets. This is why you need a diverse basket of stocks to watch. By looking at leaders in various industries — particularly those tied to the consumer economy — we can get a “rubber-meets-the-road” indicator.
With multiple companies having released their Q1 results, we’re now looking ahead to Q2. Naturally, management teams are reticent about their true feelings about the economy. Thus, these 10 stocks to watch will take on greater meaning in the months ahead.
- Target (NYSE:TGT)
- Verizon (NYSE:VZ)
- Apple (NASDAQ:AAPL)
- Robert Half International (NYSE:RHI)
- Exxon Mobil (NYSE:XOM)
- Toyota (NYSE:TM)
- Ferrari (NYSE:RACE)
- United Airlines (NASDAQ:UAL)
- AMC Entertainment (NYSE:AMC)
- Live Nation Entertainment (NYSE:LYV)
Remember, you should treat these names as economic indicators rather than pure recommendations to buy or sell. I’m sure there will be plenty of time for the latter exercise. For now, here are 10 stocks to watch closely in Q2.
Key Stocks to Watch Now: Target (TGT)
First on my list of stocks to watch is big-box retailer Target. In my opinion, TGT stock represents one of the most balanced perspectives of consumer sentiment. Yes, the average income level of a Target shopper is higher than that of Walmart (NYSE:WMT), which may skew perception. However, Target, unlike Costco (NASDAQ:COST), is a membership-free retailer, so it’s not heavily biased toward affluent shoppers.
Besides, shopping at Target isn’t exactly akin to vacationing at The Hamptons.
In its most recent earnings report at the time of this writing (Q4 2019), the retailing giant produced mixed results, beating on earnings per share, but dipping slightly against revenue expectations. Primarily, the company reported weak toy sales, causing TGT stock to dive on the disclosure.
Moving forward, we can expect a massive surge in online sales, particularly for essential goods. However, what about apparel and other discretionary items? The magnitude of impact beyond groceries and toilet paper will be a huge factor for Q2. If you’re looking at any company, make sure to put TGT atop your list of stocks to watch.
Another big name among stocks to watch closely in Q2 is Verizon. As you know, we can’t live without our smartphones and other digital devices. But those things cost money. Not only that, the services to run our massive collection of smart devices represent recurring expenses. Therefore, you’ll want to keep close tabs on VZ stock, even if you don’t plan on buying it.
Principally, I want to know if consumers will continue to be subscribers during this harsh, unprecedented calamity. For its Q1 2020 earnings report, Verizon disclosed that it had lost 68,000 phone subscribers who pay a monthly bill. That’s not surprising, given that the company was forced to close 70% of its stores.
However, many states, including the big one of California, have either reopened or are planning to, with certain limitations. How the consumer responds in Q2 will be vital.
If VZ stock tumbles between now and its Q2 earnings report, it may be a sign that the writing is on the wall. Either way, you can’t risk omitting Verizon from your stocks to watch.
On a related note, concerned investors should keep close tabs on consumer electronics king Apple. When I said above that we can’t live without gizmos and gadgets, more often than not, they’re Apple-branded products. Because of this extreme dominance, the company could largely do what it wants and people would buy it. Thus, it’s no surprise that AAPL stock has been a fan favorite of Wall Street.
But now, this is crunch time for the company. With Target and Verizon, these two companies represent a relatively balanced mix between wants and needs. With Apple, I would argue that it’s mostly wants. As you know, Apple charges a healthy premium for its products. If you want cheaper but effective alternatives, you have choices aplenty.
Will consumers continue to choose Apple? If the markets genuinely believe so, then look for AAPL stock to move higher. But any weakness might suggest that even this giant can’t rise above the muck.
Bottom line: it’s best to ignore the comparatively positive figures for Apple’s Q1 earnings report. Instead, treat AAPL as a key consumer barometer among your portfolio of stocks to watch.
Robert Half International (RHI)
During a tumultuous six-week period, over 30 million Americans filed for unemployment benefits. Naturally, this has caused untold agony and despair among suddenly terminated or furloughed workers. While we’ve collectively sacrificed deeply to combat the coronavirus, a new debate has emerged: was the cure worse than the disease? To get a better sense of the employment market, I’d put Robert Half International in your list of stocks to watch closely.
Over the last few years, the meaning of work has changed dramatically. Rising from obscurity to incredible prominence is the gig economy. Indeed, the various state shelter-in-place orders have improved the visibility and viability of gig work.
But not all organizations are down with freelancers. Furthermore, a largescale change will require significant time. Therefore, RHI stock is a useful barometer to gauge the health of the labor market. As personal savings run dry, you would expect many people to flood Robert Half’s offices. How effectively they’re able to match candidates with companies will determine their equity’s trajectory.
Currently, RHI stock is mirroring the Dow Jones Industrial Average, which I don’t find surprising. If discrepancies pop up, though, that’s something to consider. Therefore, this is a very important name among stocks to watch in Q2.
Exxon Mobil (XOM)
We all know that the oil sector is one of the ugliest right now. Furthermore, the narrative for big oil firms like Exxon Mobil has dramatically changed. I’m not ready to get involved with XOM stock as I believe more pain lies ahead. However, that doesn’t mean you shouldn’t consider it for stocks to watch in Q2. Despite specific apprehensions about Exxon, I recognize that it’s an economic bellwether.
Given the damage done by the oil price war between Saudi Arabia and Russia, and more so the complete lack of demand, you can reasonably expect many weaker names in our domestic oil industries to fail. Simply, the environment just doesn’t support vulnerable oil firms and may not for some time.
But XOM stock? Exxon is such a massive company that losing it is unpalatable politically. Furthermore, it employs tens of thousands of Americans, both directly and indirectly via the broader energy supply chain.
If investor sentiment doesn’t improve for XOM stock over the coming months, it could be a sign for investors to brace for severe turbulence ahead.
Along with energy and retail, one of the ugliest sectors at this time is the automotive industry. For starters, the initial wave of Covid-19 in China badly disrupted global supply chains. To no one’s shock, China dominates this arena. Thus, you had a supply problem that hit automakers like Toyota. But even worse, demand plummeted. That raises the likelihood of cars both new and used sitting on dealership lots.
From my perspective, if consumers do buy new cars, they’ll buy brands known for reliability. Logically, this benefits TM stock. This is also the reason why Toyota is a key gauge among stocks to watch in Q2.
It wouldn’t surprise me one bit to see American and German cars suffer the most during this crisis. The former cars are garbage and the latter cars are typically polished garbage at a premium. Sure, Toyota’s offer about as much excitement as waiting for your laundry to finish, but they’re known for their dependability.
If that doesn’t convince consumers, TM stock will drop. And that would be an indicator that something is very wrong with our consumer economy.
This is about as hard of a transition as you’re going to get within a specific industry. But keen investors should keep Ferrari on their list of stocks to watch.
Yeah, I get it. Very few of us can afford a Ferrari. So, why bother monitoring RACE stock? While the coronavirus-fueled economic collapse has disproportionately impacted lower-income workers, we would expect that in any crisis. What I want to know is how is this catastrophe impacting the rich?
Interestingly, RACE stock is currently in the red for the year. However, shares are only down by single digits at the time of this writing. Further, despite taking a hit from the coronavirus, the Prancing Horse expects to generate more than $1 billion in core profit this year.
You might assume that all is well with the affluent from this measurement. However, Ferrari has suffered badly from the presently suspended Formula 1 racing season. In addition, the company supplies engines to Maserati, a more reasonably priced Italian beauty.
These factors may have been priced into RACE stock. However, if the affluent start to feel some pain or setbacks, sentiment for Ferrari may decline. Thus, for balance sake, you should keep this iconic company among your stocks to watch.
United Airlines (UAL)
If you’ve read my recent articles, you’ll know that I’m skeptical about airliners. And United Airlines is no exception. With governments shutting down or severely mitigating air travel in the early response to the pandemic, UAL stock suffered badly. Beyond that, nobody really wants to share the same recycled air with hundreds of strangers.
In addition, the looming possibility of being stranded away from home is very real. That’s why I’m not at all gung-ho about cruise liners like Carnival (NYSE:CCL), either. Unlike Carnival, though, United and its competitors don’t just serve vacationers. In fact, business travel is a very lucrative subsegment of the airline industry’s revenue stream.
Therefore, UAL stock offers a multi-pronged gauge of consumer sentiment. First, are people willing to risk their health to fly somewhere? Second, are they willing to splurge on vacations during a time of economic crisis? Third, what is the appetite for business travel during said crisis?
UAL offers real-time clues to these burning questions. Therefore, this is another must-have among the list of key stocks to watch now.
AMC Entertainment (AMC)
Among the shockers of the Covid-19 pandemic is that it led to the temporary closures of movie theaters, severely impacting AMC Entertainment. Historically, from the Great Depression to the Great Recession, the cinema has provided cheap entertainment to the masses. But now, this classic bull argument for AMC stock has been curtailed.
For me, the closures of cineplexes is incredibly symbolic. When the Hollywood elites are feeling the heat, you know that something is desperately wrong. For that reason, I recommend putting AMC on your list of stocks to watch.
Specifically, I’d look for clues toward moviegoers’ willingness to share space. So far, early experiments offer some hope. Earlier this month, the New York Times detailed the experience of a San Antonio, Texas-based movie theater opening. Despite limited food and beverage offerings and a showcasing of older releases, people still came to the box office.
Will that be enough as the nation steadily marches toward reopening the economy? I’m not sure, but sentiment over AMC stock would represent an important clue.
Live Nation Entertainment (LYV)
Perhaps the ultimate sign that we’re fully recovered from Covid-19 is our willingness to attend concerts and other live events. Therefore, you’ll want to include Live Nation Entertainment on your list of stocks to watch.
Frankly, I couldn’t think of a worse environment to be in than a concert. For many, if not most musical acts, social distancing is an impossibility. Multiply that factor ten-fold for indoor settings. Additionally, economic pressures tend to bring out violence and potentially the risk of terrorism. Should consumers be willing to ignore or accept these risks, LYV stock may move significantly higher.
But I find it interesting that shares appear to be charting a bearish pennant formation. If so, we could see severe volatility for LYV stock. Personally, I’m not interested in exposing myself to such risks. However, Live Nation does provide a vital clue as to our collective thought process.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he owns AMC stock.