There will come a day where the novel coronavirus pandemic no longer exists. Eventually, vaccines, treatments and other containment measures will work. Knowing that, where should your money go? What are the best stocks to buy right now?
You could stay with what worked during the pandemic. There have been changes to lifestyles and workstyles that feel permanent. Solutions to inefficiency that spent a decade waiting for trial have been used and succeeded.
You can also go with what the pandemic has crushed. Travel, leisure, cruising — stocks to buy could include anything involving going somewhere and seeing new people. People who need people have been the most unlucky in the pandemic world. That will change.
Market leadership is going to change as the pandemic fades away. Who will be the new leaders, and how do you take advantage now?
That’s what my five recommendations are all about. For your consideration, I offer two companies that benefit from some change proving permanent, two that benefit if we can get back to normal and one that seems to win either way.
Here are five stocks to buy with a post-pandemic world in mind:
- Procter & Gamble (NYSE:PG)
- United Parcel Service (NYSE:UPS)
- Starbucks (NASDAQ:SBUX)
- Disney (NYSE:DIS)
- Qualcomm (NASDAQ:QCOM)
Stocks to Buy: Procter & Gamble (PG)
Procter & Gamble clobbered earnings estimates for its September quarter, but the stock barely budged. It has been a big pandemic winner, but can that continue?
Sales were up 9%, and net income was up 19%, compared with a year earlier. The numbers easily beat analyst estimates. This is after the packaged goods company reported net income of $4.3 billion, $1.63 per share fully diluted, on sales of $19.3 billion.
But there are reasons, beyond the pandemic, to love this stock.
P&G has been reorganizing for years, focusing on key brands like Tide, Crest, Gillette and Old Spice. During the last decade it dumped 100 brands, including CoverGirl makeup. It also cut costs and focused on efficiency in its supply chain.
The payoff is now coming. If you could sum up today’s company in one word, it’s cleaning. Brands like Mr. Clean, Dawn, Comet and Febreze have gone through some short-term rationing during the pandemic. Personal cleaning product sales were up 30% for the quarter.
P&G management now intends to give gains back to shareholders. It plans to spend $2 billion per quarter on dividends and almost as much buying back stock during fiscal 2021.
But Procter & Gamble stock isn’t for everyone. If you’re looking for fat gains, look elsewhere. If you’re looking for steady income and have a long-term view, it deserves a place in your portfolio.
United Parcel Service (UPS)
Remember the days when analysts thought Amazon (NASDAQ:AMZN) would kill shipping companies like UPS? Instead, the Covid-19 pandemic, and the resulting rise in online shopping, is stretching delivery services to their limits.
This has done wonders for UPS stock, which has broken out of a five-year trading range. Shares are up 46% for the year.
Credit goes to Amazon, which chose to focus on grabbing market share during the pandemic, instead of investing in delivery capacity. Unlike rival FedEx, UPS chose not to feud with Amazon. Amazon’s move played right into UPS’ hands. The company increased capital spending during 2019, to almost $6.4 billion. It was able to make money on that spending during the pandemic.
Not everyone is sold on this continuing. Analyst Wolf Richter said consumers expecting stimulus checks and rent forbearance could cut back quickly if they don’t get money soon. Ocean containers were sold out for October sailing, and shippers are paying higher rates.
Much of this is catch-up traffic. Freight volumes plunged at the start of the year and remained below 2018 levels in September. While current spending on durable goods is at a $1.7 trillion rate, it’s normally $1.5 trillion, and fell to $1.2 trillion early in the year.
UPS investors face two big questions going into next year. How much of the online boom will remain intact after the pandemic, and how much capacity will Amazon’s own capital spending take from the market? When considering this question, know that the coronavirus vaccine, especially a longer rollout, could boost shippers like UPS.
At its current price, UPS is fully valued. A price-earnings ratio of 34 times is high for a slow growth company, and the dividend now yields just 2.3%. But the rise of Amazon and online shopping, and the fall of the U.S. Postal Service, all provide tailwinds for the stock.
Stocks to Buy: Starbucks (SBUX)
Starbucks was one of the pandemic’s biggest losers, but it may be one of the first losers to recover.
It is now a stock that aging investors can buy and hold, letting time work its magic. Shares are up only 8% per year over the last five, but the dividend has doubled. It will grow another 10% next month, to 45 cents per share.
Starbucks, in short, is becoming like another American icon, Coca-Cola (NYSE:KO). Its Robert Woodruff is Howard Schultz. He wasn’t Starbucks’ founder, but he got the company through its toughest crises. He created the corporate culture, he made the company a leader in automation, he started its move into China. Current CEO Kevin Johnson can now just focus on managing the business.
Until the pandemic, Johnson’s approach was delivering sales that grew about 10% per year, a reliable stream of earnings. The dividend announcement is important. It represents management’s certainty that those good old days can return.
InvestorPlace’s Mark Hake recently wrote that Starbucks could rise 20% after earnings, assuming it meets analyst expectations, especially on same-store sales.
You can buy it here, or you can gamble that it misses the mark and buy it later. Either way know what you’re buying, a steady dividend payer, a slow growth representation of the American ideal.
When the pandemic hit, Disney was launching a gamble on streaming, and getting huge profits from its theme parks.
The pandemic shut the parks, accelerated cord-cutting and forced the company to focus on streaming. The June quarter saw revenues down 42%, from $20 billion to just over $11 billion. Park revenues were down 85%, movies down 55%. A rare quarterly loss, $2.61 per share, came in August. Another loss is expected when the company next reports Nov. 12.
But the stock remains strong. In fact, most analysts still rate it a buy. Why? They believe Disney pulled off streaming, its biggest risk going into 2020. The other businesses can soon turn around.
During the September quarter, Disney slowly began reopening resorts. But 28,000 workers were laid off at the end of the quarter. Fans and former cast members may protest, but the company’s hands are tied.
Then there’s the movie business. Disney moved its summer tentpoles Mulan and Hamilton into customer living rooms through Disney+ streaming. The latter was offered to spur subscriptions, the former sold as a pay-per-view event. Investors and analysts will want to know in November how that’s going, because pay-per-view is the future. Importantly, we know Disney+ had 60.5 million paying customers at the end of June. Will that rapid success continue?
Despite the stock rising on its latest reorganization, Disney has a crisis on its hands. Each time it moves a tentpole movie to streaming, as with the coming Pixar film Soul, it is accepting pennies where there once were dollars. Analysts also expect the theme parks to come roaring back next year.
But the Disney that’s emerging from the pandemic is very different from the one that went in. The company has caught the coronavirus, and it’s going to be a long haul.
Stocks to Buy: Qualcomm (QCOM)
Qualcomm has been very, very good to me. It looked like a winner coming into the pandemic and it looks like it will remain a winner after. That is why it is one of the best stocks to buy now.
It didn’t take a genius to see Qualcomm rising. Its legal troubles are now behind it, and 5G means more equipment sales, thus more modem sales. The only question is whether buying more makes sense.
While CEO Steve Mollenkopf beat Apple (NASDAQ:AAPL) in court on his policy of tying patent rights to chips, Cupertino is still vowing revenge. Apple has bought what was left of Intel’s (NASDAQ:INTC) modem business. As with processors, it plans to be its own supplier.
Qualcomm is working with Asus (OTCMKTS:ASUUY) on a “gaming” phone. This could be a big win in the new era of “cloud gaming” with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and other Big Tech companies taking more of the processing load.
However, Qualcomm’s problems in the phone business are years away from coming to fruition. The company plans to announce a new Snapdragon processor in December, built on a new core with circuit lines just 5 nanometers apart.
Then there is 5G. While it is being sold by phone companies as a simple upgrade, it’s not. That’s because 5G brings a host of very low and very high frequencies into the cellular mainstream. It’s not all about speed, but new applications that can be built into chips to control factory equipment, home appliances, cars, anything that depends upon measurements and adjustment to measurement. It’s 5G that will make the Machine Internet a reality. Qualcomm is going to be at the center of it.
Before beating Apple, Qualcomm was a law firm posing as a tech company. Its future was defined by its positions in court. That’s no longer the case. Long-term investors can buy now and let time work its magic.
On the date of publication, Dana Blankenhorn had long positions in QCOM, AAPL and AMZN.
Dana Blankenhorn has been a financial and technology 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.