The U.S. unemployment rate fell to 6.9% in October. Earlier in September, it had also shown another good reading, according to the figures from the Bureau of Labor Statistics. Although economists still debate the pace of recovery for the rest of the year, consumer confidence has also been improving in recent weeks. Today’s article introduces three hot stocks to buy as unemployment fears ease.
Recent research published by the European Central Bank (ECB) cites, “Economists, observers and policy-makers often emphasize the role of sentiment as a potential driver of the business cycle.”
As people feel more confident about their jobs, they usually become more optimistic and spend more. Then, as economic activity increases, shares of companies benefiting from a higher level of business typically go up in price.
Chiara Concetto and Francesco Ravazzolo of the faculty of economics and management at the Free University of Bozen-Bolzano, Italy, further highlight, “optimistic announcements drive the investors to an exaggerated optimism about future news and, therefore, to overreaction, which leads stock prices to increase.”
November also means the start of the holiday season shopping stateside. Spending levels or traditional celebrations could possibly be subdued this year. Yet, most consumers are likely to continue their year-end habits as much as possible despite the novel coronavirus pandemic.
American consumers will, on average, spend around $1,000 during the holiday season. E-commerce platforms, such as Amazon (NASDAQ:AMZN) will likely enjoy another robust few months. Therefore, we can expect shares of companies with online businesses, as well as businesses that facilitate digital payments, to do well. Recent metrics show automakers seeing improved demand, which would support auto stocks.
Since the initial Covid-19 sell-off in February and March, stocks rebounded powerfully. Although there may be short-term profit-taking, robust companies likely will see long-term gains. Against this backdrop, here are three stocks to buy as unemployment fears ease:
- ARK Fintech Innovation ETF (NYSEARCA:ARKF)
- General Motors (NYSE:GM)
- Global X Video Games & Esports ETF (NASDAQ:HERO)
Hot stocks: ARK Fintech Innovation ETF (ARKF)
Our first pick for today is an exchange-traded fund (ETF), the ARK Fintech Innovation ETF. It provides access to global companies that play a role in the financial technology innovation. They include firms offering digital wallets, mobile payments, peer-to-peer lending, blockchain technology and risk management. Thus, these businesses typically develop, use or rely on payment platforms, e-commerce, point of sale solutions, or transactional innovations.
This actively-managed fund started trading in early 2019. ARKF currently has 46 companies. The top 10 make up more than 40% of net assets of $674 million. Two San Francisco-based innovators, namely commerce and financial payments ecosystem Square (NYSE:SQ) and visual discovery engine Pinterest (NYSE:PINS) lead the list of holdings. They are followed by Argentina-headquartered e-commerce firm Mercadolibre (NASDAQ:MELI), China-based Tencent (OTCMKTS:TCEHY), which has diverse online operations, and Charlotte, North Carolina-headquartered online consumer loan marketplace LendingTree (NASDAQ:TREE).
Since the start of the year, ARKF is up more than 95% and recently hit an all-time high. A potential decline toward $42.50 would make the risk/return profile more favorable for long-term investors, who could consider buying the declines. The fund’s thematic approach will likely benefit from secular changes in the digital payments space.
General Motors (GM)
Detroit-based General Motors was incorporated in 1908. Decade after decade, highways in the U.S. and worldwide carried iconic brands from the automaker. For car manufacturers, 2020 meant many challenges due to the pandemic. It also is the year when investor interest in electric vehicles (EVs) has peaked, landing it on our list of hot stocks to watch.
On Nov. 5, GM released strong Q3 report as “the company continued to invest in its electric vehicle and autonomous vehicle growth initiatives, launched an all-new portfolio of full-size Chevrolet, GMC and Cadillac sport utility vehicles, and maintained leading U.S. full-size pickup truck and large SUV market share.”
Quarterly revenue came at $35.48 billion. Net income was $4.05 billion, an increase of 74% year-over-year. However, management does not expect the fourth-quarter to be as robust as Q3.
So far in 2020, GM stock is up 22%. Its forward P/E , P/S, and P/B ratios stand at 7.33, 0.56, and 1.49 respectively. We’d look to buy the dips in the car maker. On a final note, many analysts are positive on “Cruise,” the autonomous driving entity in part owned by General Motors. The other partners are Softbank (OTCMKTS:SFTBY) and Honda (NYSE:HMC).
Global X Video Games & Esports ETF (HERO)
Our third discussion of hot stocks to buy focuses on another fund, the Global X Video Games & Esports ETF. It provides exposure to businesses that publish and distribute video games, operate e-sports leagues or produce hardware for video games.
HERO, with 40 holdings, started trading in October 2019. The top 10 firms comprise around half of net assets of $394 million. The fund’s top five holdings are Sea (NYSE:SE), Nvidia (NASDAQ:NVDA), Nintendo (OTCMKTS:NTDOY), Activision Blizzard (NASDAQ:ATVI) and NetEase (NASDAQ:NTES).
Year-to-date, HERO is up more than 70% and reached an all-time high earlier in November. Investors can expect the sector to benefit from both the second wave of the pandemic, which increases the number of people playing games and participating in e-sports, as well as holiday shopping.
Finally, gaming enthusiasts also recently welcomed the launch of next-generation consoles from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE). We expect many companies in the fund to increase revenues and keep growing in the coming quarters, too.
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.