A lot of us are repeating the mantra “and this too shall pass” as the novel coronavirus pandemic continues. The virus has crashed the economy, with GDP down 12% in one quarter, and unemployment at 11%. The virus has trapped us in our home-offices since March. It’s worse than ever, but this too shall pass. And now, some of the best stocks for 2020 could see a post-COVID rebound.
Sure, the virus won’t magically disappear, but our fear of it will dissipate. There will be better treatments, maybe a vaccine, and the economy will be liberated from its prison.
That said, what should you buy to prepare for that day? What stocks offer the best chance of big gains in 2020, 2021 and beyond? How can you invest today for that better day tomorrow?
I have seven names that ring that bell, and they represent some of the best stocks of 2020 to buy. They are:
- Visa (NYSE:V)
- Walmart (NYSE:WMT)
- Starbucks (NASDAQ:SBUX)
- Intel (NASDAQ:INTC)
- Caesars Entertainment (NASDAQ:CZR)
- Delta Air Lines (NYSE:DAL)
- Disney (NYSE:DIS)
So, with all of that in mind, let’s dive in.
Best Stocks for 2020 for Post-COVID Rebound: Visa (V)
During the third quarter of fiscal year 2020, Visa reported net income $2.4 billion for earnings per share (EPS) of $1.07, on revenue of $4.8 billion. That said, income was down 23% year-over-year, while revenue that was down 17% during the same period.
This should have surprised no one. However, the stock dropped $3 per share overnight, recovered all the loss the next day and then fell again. It seemed investors were grabbing Visa stock with every downtick. Why? Because they see a long-term impact from the COVID-19 virus, one that favors electronic payments.
Moreover, newer technologies — where cards aren’t present or just tapped against a screen — were both hot during the quarter. Electronic payments went up 25%, and Visa alone shipped 80 million cards that can use radio-based “tap” systems such as Apple (NASDAQ:AAPL) Pay. Additionally, U.S. transactions through Visa Direct — its “disbursement” product — rose 75%.
These tweaks to the revenue mix, which favor higher-profit operations, meant Visa could beat analyst estimates. Meanwhile, the weakness in total transactions and especially cross-border payments was seen to be temporary. The strength from new types of cards and more-profitable payment streams, however, was seen to be permanent. That’s what Visa CEO Al Kelly predicted on the company’s conference call, and the analysts bought it. In fact, RBC Capital reiterated its buy call.
Visa is now America’s biggest banking company, by market capitalization, and the most future-proof banking investment you can make now. The company’s $426 billion valuation and current mark around 33 times forward earnings means it has the financial firepower to buy smaller financial technology companies, or fintechs, and stay relevant. That’s something even the biggest bank processors can’t say.
So, as the lockdown eases, Visa will use that firepower. The long-term future lies with companies that cut out even the payment middlemen, making V one of the best stocks for 2020.
Why are analysts pounding the table for a retailer with 3% growth, a forward price-earnings (P/E) multiple of about 26 and a dividend yield just 1.67%?
Because it’s Walmart.
Walmart did not include guidance in its latest earnings release. But according to Wall Street, analysts are looking for revenue of $546.42 billion this year. That said, Walmart CEO Doug McMillon continues to look everywhere for growth.
The latest initiative is Walmart Plus. It’s pitched as an alternative to Amazon (NASDAQ:AMZN) Prime, offering same day delivery of groceries and discounts at Walmart fuel pumps. In turn, the program could make Walmart.com profitable — something most e-commerce sites can’t say.
More promising is Walmart Insurance Services, another new subsidiary of the company. It’s part of a broader reach into healthcare, which includes a partnership with a Capital Rx and larger in-store clinics delivering primary care. Such clinics could keep Walmart stores from having to downsize as retailing moves online.
Overall, Walmart is following a well-trodden path here. CVS Health (NYSE:CVS) bought Aetna in 2018, becoming America’s largest health insurer by revenue. Amazon, Berkshire Hathaway (NYSE:BRK.A) and JPMorgan Chase (NYSE:JPM) have also teamed on a health insurance start-up Haven Health. They could use a retail outlet, and a ready source of primary care.
Collectively, Walmart stock is a conservative investment that should continue to do well. It’s not cheap and may take time to pay off, but your patience will be rewarded.
Best Stocks for 2020 for Post-COVID Rebound: Starbucks (SBUX)
Starbucks survived the attack of Luckin Coffee on its China business, and is taking its lessons to the U.S.
That said, that’s how Starbucks is adapting to the pandemic now. The company used its app, drive-throughs and delivery to suffer only a 5% drop in sales during its most recent quarter. In turn, it’s now doubling down on the strategy, while closing 400 stores in the process.
With all of that in mind, the new strategy makes Starbucks one of the few restaurant stocks worth looking at.
Stores were already just 1,000 square feet in many locations. Now, though. the company is adding walk-up windows to its drive-up windows — moving the action to its patios. The company is also automating its relationship with Uber Eats and other delivery services, and is pushing its app as a primary point of contact.
So instead of couches and WiFi, Starbucks is going with counters, delivery and the smell of car exhaust. This won’t save the current quarter, where analysts expect EPS of 29 cents and revenue of $6 billion. This is a bit lower than a normal quarter, but it could create a profitable “new normal.”
Before the pandemic, Starbucks had defined its stores as a “third place.” It wasn’t home, or the office, but a personal space for meetings and getting work done. But until there is a vaccine, this space will go away. That said, Starbucks is trying to redefine itself as an extension of its app.
When the pandemic lifts, however, this “third place” business will return, and so will fat Starbucks profits. So far, Starbucks hasn’t cut its dividend — a $1.64 payoff yielding 2.14%. In turn, this has maintained the loyalty of most analysts. In fact, Tipranks follows 24 Starbucks analysts, and none has the sell light lit. Their median price target is also $83.47, which would be a 11% gain.
Moreover, in addition to praising its fast reaction to the pandemic, analysts also like Starbucks’ operations in China, which is reopening. They see Starbucks seizing Luckin’s niche and continuing to grow there.
So, overall, SBUX is one of the best stocks for 2020 and could be one of the one’s to see a post-COVID bounce.
Despite its own failures, Intel keeps making more money.
Here’s CEO Robert Swan on the June quarter:
“We exceeded our guidance by $1.2 billion on the top line and 13 cents on the bottom line. Our data-centric businesses grew 34 percent and drove approximately 52 percent of the company’s revenue, and our PC-centric business grew 7 percent.”
Seen in isolation, Intel’s most recent earnings were spectacular. The company reported non-GAAP EPS of $1.23, up 16% YOY, on revenue of $19.7 billion. There was also $10.6 billion in free cash flow and $2.8 billion paid out in dividends.
Yet, shares that traded at $61 a week earlier, before earnings, opened July 29 at $49.30. The dividend now yields 2.73%, and Intel’s trailing P/E ratio is 9. Meanwhile, rival Advanced Micro Device’s (NASDAQ:AMD) trades at a PE of nearly 150.
The reason is that Intel continues to have problems with the next iteration of Moore’s Law. It has promised customers chips with circuit lines 7 nanometers apart, but still can’t make them. That means Intel is now going to buy production from its manufacturing rival, Taiwan Semiconductor (NYSE:TSM). It would be like Ford (NYSE:F) CEO Jim Hackett saying his new pick-up would be made by Toyota Motors (NYSE:TM)
Additionally, some major names in finance have an opinion on INTC. “I don’t have a reason to buy Intel,” said CNBC analyst Jim Cramer. “Intel has zero-to-no chance of catching or surpassing Taiwan Semiconductor at least for the next half decade, if not ever,” Susquehanna analyst Chris Rolland wrote.
Overall, that makes Intel a value stock. Its dividend yields a fat 2.73%, and it’s affordable. The trailing P/E ratio is also below 9. How many tech stocks can you buy with those numbers, especially stocks where sales and earnings are growing?
Sure, it’s true that Intel has problems. Intel hasn’t had an entrepreneur at the helm since the late Andy Grove retired in 1998. However, Intel is not dead yet — not if they can find a great engineer, put them in charge, let them build a team, and lead.
This is a stock that can be saved with a single corporate announcement, a single key hire. That said, INTC stock is another one of the best stocks for 2020 that could see a rebound from COVID-19.
Best Stocks for 2020 for Post-COVID Rebound: Caesars Entertainment (CZR)
Eldorado Resorts, a regional casino operator, and Caesars Entertainment, one of the largest Las Vegas casino operators, completed their merger back in July. The new company goes to market with the Caesar’s name, just as Harrah’s did when it bought the company in 2005.
The latest Caesar’s buyout was engineered by investor Carl Icahn, who had 28.5% of the old Caesar’s and will have 10% of the new company. It makes CEO Tom Reeg, who built Eldorado out of Reno, the new King of Las Vegas. That said, though, how well the new company does will depend on how long debt remains cheap and how fast the economy reopens.
Overall, Eldorado was barely one-quarter the size of Caesar’s. However, it raised $6.6 billion of the cash needed for the deal at an average interest rate of 6.77%. It also sold $722 million of stock and took on Caesar’s existing $9.7 billion in debt. The company now has about $23.4 billion of tangible assets burdened by $19.3 billion of debt.
But once the pandemic lifts, watch out. The new Caesar’s will operate 55 casino properties worldwide, and Reeg sold small casinos in Vicksburg, Mississippi and Kansas City at the insistence of regulators. That said, he will also have to sell at least one of those Las Vegas properties post-merger — with the most likely buyer is Twin River Worldwide Holdings (NYSE:TRWH).
Reeg, and the regulators who signed off on the deal, are betting that the U.S. gambling market bounces back quickly.
In the short run, the Eldorado portion of the company is doing better than the Caesar’s side. Reeg’s preliminary figures for May show them getting 9%-11% more business than a year earlier, while properties in Las Vegas were down more than 40%. With that in mind, though, most Las Vegas visitors fly in — while those who go to the regional casinos drive. Therefore, the Las Vegas properties depend not just on the city re-opening, but on airlines as well.
Overall, even if everything opens, there’s also the economy to worry about. Caesar’s stock is a put on the virus, and a bet that the 2019 economy will return in 2021.
Delta Air Lines (DAL)
On July 14, Delta Air Lines announced its June quarter results before the market opened. And they were terrible.
The company lost $3.9 billion, $4.43 per share fully adjusted and revenue of $1.2 billion.
Sell, sell, sell, right? Nope. Buy, buy, buy.
On July 15, the shares gained nearly 10% with investors gambling that air travelers will return and that Delta will survive.
The reason? Delta ended the quarter with $15.7 billion of liquidity. Investors know that Delta is flying low, but they’re betting it will clear the trees.
Moreover, Delta took $5.4 billion on the CARES Act and has used plenty of the $3.8 billion grant. It also took a $1.6 billion loan with warrants representing 1% of the equity, at $24.39 per share. Delta opened for trade July 16 at $27.75, and they were still in the money on July 31.
Delta has since gotten about 15,000 employees to take voluntary buyouts. This means it may avoid layoffs, which would take out the newest, lowest-paid workers first. Without the aid those workers, and more, would already be on unemployment.
In addition to paying employees to do nothing, Delta has also been using the last three months to upgrade its fleet. Its Boeing (NYSE:BA) 777s are being retired. But all of its Airbus (OTCMKTS:EADSY) A-350s are flying again on long-haul routes.
That’s another reason for optimism. While three passengers on its Endeavor Air recently tested positive for COVID-19 going from Albany, GA to Atlanta, the rest of the world is recovering. This has become an American pandemic, which means international operations are slowly coming back.
Right now, Delta is hostage to the COVID-19 pandemic. Investors have known that, but the stock keeps trading because Delta took the CARES Act money.
Recent surveys show that wearing masks to fight the spread is finally taking off, even among critics of the practice. And if the American people finally get smarter than their leaders, Delta could take off quickly.
Best Stocks for 2020 for Post-COVID Rebound: Disney (DIS)
Disney reopened its theme parks in the middle of a pandemic, and analysts took this as a sign of confidence rather than desperation.
It’s all part of the magical thinking that has kept stock in Disney high through the crisis. Shares fell to a low of $85 in March, but opened July 31 at over $114. That means the stock has recovered half its pandemic loss even while analysts anticipate a loss on 20% less revenue, or $15.9 billion.
Moreover, how can Disney’s revenue be down so little when its parks were closed for a quarter, and usually represent a third of its total revenue? How can revenue be down so little when movie theaters are shuttered and there’s no sports? How can revenue be down so little when cord cutting continues and Disney is still bundling its streaming services at a single Netflix (NASDAQ:NFLX) price?
Some of the magic lives in Disney’s first quarter report, its last pre-pandemic print. What it called “direct to consumer” revenue quadrupled, thanks to the streaming bundle of ESPN+, Disney+ and Hulu. Yet revenue from media networks, mostly cable, rose 24%.
For the June quarter, studio revenue should be near zero. So should revenue from the theme parks. Even if direct to consumer revenue doubles, with an exclusive on the musical Hamilton, it can’t make up for that. (The play was originally bought for theater presentation.) Disney was getting $9/month for its sports networks for each cable subscriber, while charging $5/month for ESPN+.
For now, Wall Street is looking past the pandemic. Disney is proving that a virus-free life is possible in its “bubble.” NBA and MLS games are being played at its “Wide World of Sports” complex, with players quarantined at its hotels.
Collectively, though, I would wait on Disney stock until after earnings. The pandemic is going to roll on for at least two more quarters. Disney isn’t making up for its lost revenue in media networks with streaming and won’t until it starts hiking prices. And at some point, investors are going to look down into the reality of this situation and sell.
That’s when you buy, though — when the rose-colored glasses are broken and the elves who fix them are backed-up.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.