According to the U.S. Food and Drug Administration’s (FDA) website, there are currently two vaccines authorized for emergency use — one made by Moderna (NASDAQ:MRNA) and the jointly developed vaccine from Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX). While this doesn’t mean that the pandemic will be over tomorrow, it does mean that an end is in sight. First and foremost, that’s a great thing for humanity.
What’s more, these vaccine approvals get us closer to the herd immunity that scientific leaders agree is necessary for the pandemic to end. Unfortunately, though, we will probably continue to live like we have been for a while. According to Dr. Anthony Fauci, herd immunity could happen by late summer, returning us to a state of normalcy toward the close of 2021.
However, there are always silver linings in the grayest of clouds. In this case, that’s particularly true for investors. Now that vaccines are being approved, certain stocks have great chances to rise.
So, my take? Investors should hedge their bets on the strongest stocks within the most beleaguered sectors. Those are the hot stocks to buy now. But don’t seek out the most beaten-down stocks within the hardest-hit categories. They’re likely to have serious troubles compounded by the pandemic and will rise more slowly, if at all.
- Southwest (NYSE:LUV)
- Delta (NYSE:DAL)
- Norwegian Cruise Lines (NYSE:NCLH)
- Shell (NYSE:RDS.A, NYSE:RDS.B)
- Advance Auto Parts (NYSE:AAP)
- Darden Restaurants (NYSE:DRI)
- Disney (NYSE:DIS)
Hot Stocks to Buy Now: Southwest (LUV)
According to Statista, four U.S. airlines controlled nearly two-thirds of the market share from October of last year up to this past September. So, once travel fully resumes, the strongest of these dominant players should have excellent chances to rise. That makes Southwest — on of those top four companies — the first name on my list of hot stocks to buy now.
Of course, the major airlines have suffered immensely during the pandemic. In part, that’s because the costs of operating an airline are massive, even when planes are left idle. Anyone who’s read about airlines during the pandemic — or contemplated investing in their stock — is likely familiar with these companies’ often astronomical daily cash burn.
So, the airlines with the tightest operations are those that stand to emerge from the pandemic in the best position. Conversely, airlines with less efficient operations have had to take on much more debt in service of their stagnant assets. That means they will be that much farther behind when normal flight operations resume. For instance, American Airlines (NASDAQ:AAL) was burning an average of $44 million per day in cash in its third quarter. Southwest burned a much more modest $16 million per day on average during the same period.
Southwest is known for having the strongest balance sheet of the major airline operators. So, it is almost undoubtedly going to be in the best position once travel resumes. Now that we can safely say that there is light at the end of the tunnel, it may well be time to pull the trigger on LUV stock.
Delta Airlines expects to record an average of $10 million to $12 million in daily cash burn in Q4. That’s not great and if Delta management had known that this time last year, they’d likely anticipate pink slips. Yet, Delta is the second strongest of the major airlines in my view.
Airline stocks have struggled in general this year, but Delta had been improving prior to the pandemic. The company is in little danger of going bankrupt, boasting $21.6 billion in liquidity at the end of September. What’s more, Delta used $2.6 billion in cash during the quarter. Assuming it maintains that pace, the airline would burn roughly $10 billion through Q3 2021. Of course, that shouldn’t occur and the actual number will likely be much lower. But even in if that did happen, Delta would still have about $11 billion in liquidity without any further liquidity-boosting efforts.
DAL stock remains down roughly 31% year-to-date (YTD) as of this writing. However, with travel certain to resume at some point and multiple vaccines having emergency-use approval, the time for the company’s recovery is drawing nearer. More people will be flying soon and Delta will rise quicker than other major airlines (with the exception of Southwest). That makes this company a solid pick when it comes to hot stocks to buy now.
Norwegian Cruise Lines (NCLH)
Next on my list of hot stocks to buy now is Norwegian Cruise Lines. Like airlines, the cruise line industry is extremely top heavy. In fact, the top three operators in the sector account for the majority of market share. It is predicted that Carnival (NYSE:CCL), Royal Caribbean (NYSE:RCL) and Norwegian Cruise lines will account for 70.9% of industry revenues in 2021.
Additionally, like the airlines, cruises are capital expenditure heavy, too, costing massive amounts of money to operate. Idle ships incur lots of losses. That’s why American Airlines and Carnival have suffered so much during this pandemic — they have some of the largest fleets and are simply racking up losses at a greater scale than their competitors. Evidently, sometimes being the biggest isn’t the best.
Norwegian, however, recorded a third quarter loss of just over $677 million compared to $1.2 billion and $2.9 billion for Royal Caribbean and Carnival, respectively. So, the company’s losses — while staggering — are much better than those of its peers. As such, now could be a very good time to buy NCLH stock for its comparative strengths in a top heavy market.
The folks at Shell are very likely cheering on any and all news relating to the novel coronavirus vaccines. And they — along with the entire energy industry — have every right to do so. Oil prices drive much of what Shell does and oil prices themselves are dependent upon the global economy, driving habits and politics. Most of those factors worked against the sector this past year. More than anything, though, Shell needs people driving again so that it can get back on track. The recent vaccine approvals put that reality in reach.
Generally, investors are wary of buying into energy stocks. For one, many believe that consumption trends are moving away from fossil fuels toward cleaner sources of energy. Shell itself aims to significantly reduce its energy emissions business by 2050. But there is simply a long way to go.
So, the fact is that oil companies aren’t going anywhere quickly. And when it comes to oil, RDS-A stock is well-regarded by Wall Street, much more than other names in the sector. Plus, the company has committed to distributing “20-30% of cash flows from operations to shareholders,” making it one of the hot stocks to buy now for investors unconcerned with the implications of capital gains.
The immediate danger to oil stocks isn’t nearly as severe as some pundits would have you believe. Essentially, there’s plenty of post-pandemic money to be made in stocks like Shell.
Advance Auto Parts (AAP)
The next name on my list of hot stocks to buy now is Advance Auto Parts. When your vehicle needed parts or servicing in the past, there’s a good chance you turned to this company. Now, AAP stock is relatively unchanged YTD, but its management should still be ecstatic about vaccine news.
The calculus is simple: the more people there are vaccinated for Covid-19, the more people there are driving. On top of that, the more that people drive, the more often that their vehicles require maintenance. That’s where Advance Auto Parts comes in.
The company has a few things working in its favor moving forward. For one, Wall Street likes the stock. Analysts covering AAP stock continue to see it as Overweight, following two straight quarters in which it delivered earnings beats.
Furthermore, Advance Auto Parts posted strong Q3 highlights despite the fact that people are driving less. Net sales rose nearly 9.9% compared to the same period last year and operating income increased to $256.8 million, representing a 49% increase. That makes AAP a solid bet in the new year.
Darden Restaurants (DRI)
Darden Restaurants is best known for its Olive Garden and Longhorn Steakhouse brands, but the company includes several other franchises as well. In Q2, Darden posted total sales of $1.66 billion. That represented a 19.4% decrease relative to the same period last year. Obviously, the pandemic is driving that dip. So, anticipating a return to dine-in eating, the company has plenty of reasons to celebrate vaccine news.
Fortunately for the company, though, DRI stock actually hasn’t suffered as much as you might have expected. Currently, the stock is up a modest 8.24% YTD. That’s a pretty strong sign given the sales decline and the fact that the company operates in the sit-down restaurant space.
Based on this, Darden is one of the stronger names in its sector as well as one the best hot stocks to buy now. Once more people become vaccinated and we approach herd immunity, DRI stock should rise.
Last on my list of hot stocks to buy now is Disney, a name almost all of us know, whether old or young. Through the nine months ending in June of 2019, Disney reported a net income of $9.65 billion dollars. Through the same period in 2020, however, it reported a net income loss of $2.12 billion.
However, Disney did very well with Disney+ this year, its platform that now boasts over 86 million subscribers. But when most people think of Disney, they think of the theme parks. And the effects of Covid-19 on its theme parks have been severe. The company incurred a $1.96 billion operating income loss for its Parks, Experiences and Products segment in Q3 of 2020.
That’s a significant piece of the company’s operating income, so management must be over the moon at the vaccine news and the potential for a turnaround. So, given that analyst sentiment has remained strong toward the company and that it should be able to recoup some of its losses in 2021, now looks like a good time to buy DIS stock.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.