2020 has added several new terms, such as “social distancing” to our daily vocabulary. Therefore, let’s look at five hot stocks to buy that are still profiting from social distancing.
Recent research led by Jean-Noel Barrot of HEC Paris highlights the following:
“The global health crisis caused by the outbreak of the Covid-19 virus has led many countries to implement drastic measures of social distancing. These include shutting down public spaces, restaurants and shops, closing schools, and restricting any economic activity inducing close physical contact between workers. Such restrictions are considered a powerful way of slowing virus propagation and saving human lives.”
Meanwhile, since early spring, several market and investing trends have emerged. The pandemic has demonstrated that the fast pace of digital transformation is here to stay. That said, we can expect semiconductor, robotics, artificial intelligence (AI), cloud, digital communications, cybersecurity and online streaming to do well in the coming quarters, too.
Moreover, consumers have also been been shopping online and eating at home more. In turn, this trend is benefiting e-commerce companies and food businesses. Since the March lows, stocks in these sectors have prospered as online shopping, consumer staples and agricultural produce have demonstrated their value.
The coronavirus pandemic has also brought healthcare into the spotlight. For all of us, the importance of healthcare has become clear for citizens worldwide. Amid increased volatility in broader markets, analysts are debating how the U.S. economy may look in the final stretch of the year. Since the healthcare sector tends to hold firm during contractions in the economy, pharmaceutical companies may continue to exhibit strength long-term.
Finally, as we talk about increased choppiness in the markets, we have to remember that many investors are seeking stability as well as reliable dividend income. We all need water, gas and electricity in our daily lives. That said, these firms have regular cash flows which enable them to provide reliable dividends.
So, with that backdrop, here are five hot stocks to buy:
- GlaxoSmithKline (NYSE:GSK)
- Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
- iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF)
- Teladoc Health (NYSE:TDOC)
- Utilities Select Sector SPDR Fund (NYSEARCA:XLU)
Let’s dive in!
Hot Stocks to Buy: GlaxoSmithKline (GSK)
UK-based GlaxoSmithKline is one of the most important big pharma companies globally. It has an enviable pipeline that translates into stable cash flows. Its shingles vaccine, Shingrix, makes GSK the world’s largest vaccine manufacturer. Therefore, vaccine sales contribute to revenue and profit levels greatly. Since March, it has also been in the news with its potential vaccine against the coronavirus. And, since early spring, Sanofi (NASDAQ:SNY) and GSK are working on a vaccine for COVID-19.
In late July, GSK announced Q2 results. Revenue was at 7.6 billion pounds, which translated into pre-tax profits of 2.6 billion pounds. Pharmaceuticals, vaccines and consumer healthcare are its three segments. Vaccine sales were down by 27% in the quarter. However, this decline is likely to be a temporary one, mainly due to the effects of the lockdowns in the early part of the year. Market participants believe this decline will be a temporary hiccup. Operating margin was 37.4% and free cash flow totaled 1.95 billion pounds ($2.58 billion).
Year-to-date, the stock is still down about 17%. Its forward price-earnings ratio (P/E) and price-sales ratio (P/S) are 12.8 and 2.17, respectively. Also, GSK stock’s current price supports a dividend yield of 4.75%, which should pique the interest of passive-income seeking investors. That said, thee shares offer value for long-term portfolios, especially if the price were to decline toward the $37-level.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
The Global X Robotics & Artificial Intelligence ETF tracks the INDXX Global Robotics & Artificial Intelligence Thematic Index.
The fund has 31 companies, and the top ten holdings constitute more than 60% of total net assets. BOTZ’s top three companies are ABB (NYSE:ABB), Intuitive Surgical (NASDAQ:ISRG) and NVIDIA (NASDAQ:NVDA).
There’s a lot to like about investing in this emerging space, including growth tailwinds, barriers to entry, and strong margins. So far in the year, BOTZ is up about 23%. And on Sept. 2, it hit an all-time high. In case of further short-term profit-taking in the fund, long-term investors may consider buying the dips, especially if the price goes below $25.
Hot Stocks to Buy: iShares U.S. Healthcare Providers ETF (IHF)
The iShares U.S. Healthcare Providers ETF tracks the Dow Jones U.S. Select Healthcare Providers index. The top ten holdings constitute more than 50% of IHF’s total net assets, which are close to $1 billion. The fund’s top three companies are UnitedHealth Group (NYSE:UNH), CVS Health (NYSE:CVS), and Cigna (NYSE:CI).
Overall, the healthcare sector is broad. That said, Managed Healthcare, Healthcare Services and Healthcare Facilities constitute the top three sectors of the fund.
YTD, the fund is down about 2%. Yet, since early spring, it has returned more than 40%. I’d look to buy the fund around the $190-level. We all need healthcare, and I expect the sector to do better than many others in the coming quarters.
Teladoc Health (TDOC)
NY-based Teladoc Health is a telemedicine and virtual healthcare company. Through phone and online video consultations, its platform provides access to a wide network of physicians who treat a range of non-emergency medical issues and issue appropriate medication. In addition to serving individuals directly, the company provides virtual medical access to businesses.
In late July, Teladoc reported robust Q2 results for the quarter ending June 30. Revenue grew 85% year-over-year to $241 million, and total visits increased 203% to 2.8 million. EBITDA was also a positive at $2.7 million compared to a loss of $12.2 million for the second quarter 2019. Net loss per basic and diluted share was 34 cents, compared to 41 cents for Q2 2019.
Moreover, CEO Jason Gorevic was optimistic for the coming quarters. In fact, for the full-year 2021, the company anticipates YoY revenue growth to be in the range of 30% to 40%.
So far in the year, TDOC stock is up about 126%. The current volatility in broader markets may put further pressure in the shares, and a fall toward the $180 level is likely. Collectively, though, the company’s growth prospects are likely to stay strong.
Hot Stocks to Buy: Utilities Select Sector SPDR Fund (XLU)
The Utilities Select Sector SPDR Fund tracks the Utilities Select Sector Index and includes 28 companies.
The top ten holdings make up more than 60% of total assets under management. XLU’s top three companies are NextEra Energy (NYSE:NEE), Dominion Energy (NYSE:D), and Duke Energy (NYSE:DUK). These companies are likely to see steady demand for their services in the coming quarters, translating into relatively stable earnings. Furthermore, due diligence would likely show that many of these companies have financial flexibility to ride the choppy waters of the pandemic and support relevant expansion plans.
So far in 2020, the fund is down nearly 9%. However, that metric does not include the dividend yield. Also, XLU’s forward P/E and P/B ratios are 18.49 and 2.05, respectively.
Thus, with all of that in mind, I’d look to buy the fund — especially if it moves toward the $57.5-level.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.