The U.S. economy is in dire straights following a near-complete shutdown of business activity in April. Now, things are reopening, and the light at the end of the tunnel is shining brighter. But while the days of total shutdowns appear to be over, most experts recommend consumers operate with a high degree of caution. With that in mind, start looking for stocks to buy that benefit from both an open economy and longer-lasting social distancing.
The good news is that many are still predicting a relatively quick recovery. Pent-up demand is likely to create a flurry of economy activity.
Plus, as Brad Gold, a lecturer in business, government and society at the University of Texas at Austin, pointed out, the current conditions are conducive to a recovery. Tailwinds like lower oil prices and quantitative easing from the Federal Reserve should help U.S. firms get back on their feet.
“I don’t think there is a bright line between recession and depression, although the latter indicates a deeper state of despair and unknown problems,” he wrote in an email to InvestorPlace. “A depression exists when there is no possibility for a near-term recovery. Here, there are many indicators to support a quick recovery. For example, low interest rates and low energy costs make it easier and less expensive for businesses to operate. As soon as we’re able to tap into these resources, a recovery would happen quickly. Thus a depression would require a worsening of further circumstances that appear to be quite stable, even amidst the turmoil.”
With that in mind, here’s a look at four of the best stocks to buy as social distancing continues through the summer.
Stocks to Buy: Dropbox (DBX)
Collaborative workplace tech is an absolute winner in the age of the novel coronavirus. But working from home is likely to continue even if scientists completely eradicate the virus. Remote work was already moving into focus before the pandemic, and the fact that companies were able to make it work in March and April means it will stick around.
Not only have many firms invested in the technology and trained employees to use it, but in the long run it could reduce costs significantly. Working from home requires less office space and therefore fewer overhead costs.
There are a lot of choices when it comes to work-from-home tech firms, but many have seen such a marked rise over the past few weeks that they don’t make for good stocks to buy.
My pick in this space is Dropbox, whose share price hasn’t rocketed higher alongside big names like Zoom Video (NASDAQ:ZM).
The reason DBX stock hasn’t enjoyed the same bump is the fact that the firm is in the midst of a transformation. It is pivoting from document storage and sharing to being a one-stop-shop for online collaboration. Management says it’s working on integrating communication options and the firm’s acquisition of HelloSign means it offers users e-signature technology.
So far, Dropbox has flown under the radar, making now a good time to pick it up. According to Citi analyst Walter Pritchard, it could also become an acquisition target in the months ahead as big names like Amazon (NASDAQ:AMZN) look to dip their toe in the workplace communication market.
There are a lot of reasons to like MMM stock right now. The company’s face masks have become vital in the fight against Covid-19. Investors were somewhat surprised when the firm’s first-quarter results showed a sales decline despite strong demand in the healthcare segment.
But 3M suffered in other segments, like office supplies, as social distancing kept offices and schools from operating. Now that economies are starting to reopen, though, 3M should see somewhat of a rise in those sales. That’s evident in the firm’s Q1 results from Asia, where sales growth in China was up 7%.
Plus, 3M offers a good defensive play in an uncertain market. The firm is in the highest class of dividend aristocrats — it’s one of only 10 companies that has raised its dividend annually for the past five decades. Its staple products offer insulation from a prolonged economic downturn and the firm’s masks will likely remain in high demand until the pandemic has subsided.
As economies reopen, investors will have a laser focus on leisure stocks for signs of recovery. While betting on a restaurant in the wake of an infectious disease outbreak is certainly a risk, coffee chain Starbucks is one of the best stocks to buy as recovery takes hold.
Starbucks is one of the few restaurants that already had a pandemic plan in place when the outbreak hit the U.S. Not only does the coffee chain have its China locations to use as a blueprint, but the firm’s strong online presence has made it much easier for customers to shift away from the traditional model.
Both customers and employees were already familiar with in-app ordering, making the transition to social distancing much smoother. Plus, many of the firm’s locations already offered drive-through options. That means the firm can continue to operate in the event of a second wave.
Raytheon Technologies (RTX)
In the midst of the pandemic, Raytheon completed a merger with United Technology that saw the firm diversify its assets. It is moving away from aerospace in a move that can only be described as prophetic. That doesn’t mean RTX stock comes without risk, though. The firm is still heavily entrenched in aerospace and will feel the pain of a decline in commercial aerospace for a long time to come.
But betting on an economic recovery is tricky when it relies on people staying away from each other. That’s why Goldman Sachs recommends picking stocks that don’t rely on U.S. consumers to do well. The firm cites China’s recovery as a good example of what to expect and included RTX in its list of stocks to buy to bet on an economic recovery.
RTX’s business fits that category — the firm will do well as the economy improves, but doesn’t depend on consumers to sell to.
Plus, the firm offers a respectable dividend yield just shy of 4% that management has said it’s committed to maintaining.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, Laura Hoy did not hold any of the aforementioned securities.