Stock markets have rallied to record highs in November over expectations of an impending vaccine against Covid-19 and hopes that the economy will fully reopen in 2021.
However, while the current rally pushed the Dow Jones Industrial Average above 30,000 for the first time ever, those gains are spread unevenly across stocks. So where should investors be putting their money now?
Here we look at seven reopening stocks to buy for a post-vaccine world.
- American Airlines (NASDAQ:AAL)
- Starbucks (NASDAQ:SBUX)
- L Brands (NYSE:LB)
- Citigroup (NYSE:C)
- American Express (NYSE:AXP)
- General Motors (NYSE:GM)
- Walt Disney (NYSE:DIS)
Generally, cyclical value stocks have been winners while many technology and so called “stay at home” stocks that led throughout the pandemic have been beaten down as investors re-balance their portfolios. Let’s dive in.
Stocks To Buy For A Post-Vaccine World: American Airlines (AAL)
Let’s start with an obvious re-opening play, American Airlines. As the largest air carrier in the entire world, American Airlines is better positioned than most of its competitors to benefit from a resumption of air travel both domestically within the U.S. and to foreign destinations.
The global pandemic has, of course, been hard on the Fort Worth, Texas-based company and its shareholders. AAL stock plunged from a peak of $30.78 in February to a low of $9.50 a share in April, a decline of 69%, as lockdown measures and border closures around the world caused passenger volumes to fall off a cliff.
Share price got a boost in recent weeks as positive news circulated about a Covid-19 vaccine. But investors were disappointed when American Airlines announced on November 10 that it would be issuing an additional 38.5 million shares of common stock in an effort to boost liquidity and help bridge the business until travel resumes in earnest, likely in the second half of 2021.
At its current price of just under $15 a share, AAL stock remains a bargain and is still 50% below its 52-week high. While the company has taken on more than $40 billion of debt this year, it has the size and resources to recover once air travel resumes globally. Plus, the carrier got a recent boost when domestic air travel spiked during the Thanksgiving holidays and it could get another shot in the arm if President Donald Trump follows through with his pledge to lift travel restrictions between the U.S. and European Union.
To be sure, Covid-19 cases continue to rise and American Airlines is not out of trouble yet. However, when looking beyond the pandemic to a post-vaccine world, there are few stocks as likely to come roaring back than the biggest U.S. airline.
Starbucks weathered the global pandemic pretty well. In fact, SBUX stock is now hovering right around its 52-week high of $99.33 a share, and has risen 76% from its March low of $56.33.
However, Starbucks is likely to get a further boost once Covid-19 is in the rearview mirror, especially given the companies international expansion plans. The coffee retailer has announced plans to open 1,100 new stores in 2021, and all but 50 of those will be based outside of the U.S.
The increase will amount to 3.4% growth for its existing store base of 32,660 outlets. And those store openings are likely to be much more successful once people get vaccinated against Covid-19 and feel confident sipping a latte without having to wear a mask or stand six feet away from others in line.
Even within the U.S., Starbucks is re-configuring its operations as a result of the pandemic. Next year, the Seattle-based company plans to close 800 of its stores and then open 850 new stores in different locations around the company — shifting many outlets from urban centers to suburban outer regions. Management at Starbucks has concluded that urban centers in the U.S. are likely to endure long-term damage because of the pandemic, while more people will continue working from home long-term in the suburbs rather than commuting into city centers on a daily basis.
Signs of growing optimism include the fact that Starbucks recent fiscal fourth quarter earnings were better than analysts had expected, and the company is giving employees a raise. Starbucks says it will increase pay for baristas, shift supervisors and attendants by at least 10% as soon as December 14 of this year. The company will also increase starting wages by 5% in an effort to help attract and retain new employees.
L Brands (LB)
With its focus on women’s leisurewear and bath and beauty products, L Brands is one of the few apparel companies likely to survive the shift to casual work-from-home wear. LB stock has been on an upswing lately, with more gains likely in 2021. The share price has more than doubled to $38.95 since July of this year.
The company’s most recent earnings report on November 18 caused the stock to jump 18% in one day. L Brands revenue in the third quarter rose 14% year-over-year, with a huge 28% increase in comparable-store sales. Adjusted earnings came in at $1.13 per share, up from $0.02 a year ago. The biggest boost came from increased demand for soap and hand sanitizer during the pandemic.
While lingerie sales at L Brands outlets such as Victoria’s Secret continue to be choppy, the company’s Bath & Body Works brand (which sell soap and hand sanitizer) is going gangbusters. Overall sales for Bath & Body Works were up 56% year-over-year in the third quarter, with a 38% annual increase at physical store locations. The key moving forward will be for L Brands to find a way to maintain the momentum at Bath & Body Works after the Covid-19 pandemic subsides.
Increasingly though, the company looks to be focusing on Bath & Body Works and even tried to sell Victoria’s Secret at one point. Moving more into bath and beauty products could be a smart move for L Brands as the economy reopens throughout 2021.
Like the entire banking sector, Citigroup’s stock price languished for most of 2020. But now, bank stocks are proving to be one of the prime beneficiaries of Covid-19 vaccine news. And among banks, Citigroup stock is one to own.
Since the start of November, C stock has rallied 35%, largely on news of the Covid-19 vaccine roll out. This comes after being largely flat since the spring. And, while Citigroup’s share price has jumped lately, at $57.06, it still remains depressed and 31% below its 52-week high of $83.11 a share.
As the economy gains steam throughout 2021, investors can expect the entire banking sector to benefit. That suggests the rally in Citigroup stock has likely only just begun.
In a post-Covid world, analysts expect Citigroup to benefit from a credit recovery and the eventual increase of interest rates, as well as rising employment and consumer spending. There is also an expectation that Citigroup may resume share repurchases in 2021, which would further boost the price of C stock.
The fourth largest bank in the U.S. is positioned for continued growth and will benefit from improving conditions and sentiment for the banking sector as a whole. Analysts remain bullish, with a median price target on the stock of $61.50 and a high estimate of $99 a share.
American Express (AXP)
If Citigroup is the bank stock you want to own, then American Express is the credit card stock to keep in your portfolio. American Express, after all, is the credit card primarily used by business travelers. And while business travel may not return to levels seen before the pandemic, it is certainly going to get a lot better once a Covid-19 vaccine is widely available.
Since bottoming in March at $68.96 a share, AXP stock has climbed back 75%, now standing at $120.58 a share. However, the stock still has a ways to go to top its 52-week high of $138.13 per share. But American Express is trending in the right direction and has been a big beneficiary of the recent rotation out of technology growth stocks and into cyclical, blue-chip stocks.
Heading into 2021, American Express, along with other credit card providers, will likely benefit on two fronts in a post-vaccine world. First, American Express will benefit from a resumption of travel in the U.S. and abroad. While American Express is associated with business travel, plenty of people use the credit card for leisure travel as well.
Second, American Express will also get a boost from stronger consumer spending and retail sales expected next year. It’s a double shot in the arm that is likely to help propel AXP stock higher over the next 12 months. With operations in 130 countries, American Express will recover alongside the global economy.
General Motors (GM)
General Motors should see sales pick-up in 2021 as consumer confidence returns and people feel more confident spending money on big ticket items such as a new or used vehicle. And GM should also reap dividends from its switch to electric vehicles.
In fact, as other automakers around the world have struggled financially this year, GM has thrived thanks to robust truck and sport utility vehicle sales and a faster than expected economic recovery in China. The company’s recent third quarter results handily topped analysts estimates and GM stock popped on the news. After a decade of sub-par returns, many investors feel that GM has finally turned a corner for shareholders.
Improving consumer confidence, enthusiasm for its line up of electric vehicles and optimism for a vaccine have helped GM stock rise 170% from its March low of $16.80 a share to its current price of $45.46 a share. The current momentum has led analysts to raise their price targets on the stock and recommend buying it before it runs even higher.
Investor enthusiasm for GM has been further stoked by rumors that the company will revive its dividend , which was discontinued earlier this year as the global pandemic took hold. Clearly, this automaker is moving in the right direction.
Walt Disney (DIS)
It’s been a tale of two companies at Walt Disney throughout 2020. On one hand, theme parks and cruise ships around the world have been closed due to the pandemic, resulting in more than $2 billion of losses and 32,000 staff layoffs for the company. On the other hand, lockdowns and stay at home orders drove subscriptions of the Disney+ streaming service beyond the wildest expectations of the most bullish executives and analysts.
Since launching in November 2019, Disney+ has racked up nearly 75 million subscribers. Those numbers grew exponentially throughout the pandemic. In 2021, Disney is likely to retain those streaming subscriptions while also benefitting from the reopening of its parks, attractions and cruises.
Many analysts see DIS stock as a pure reopening play and expect it to rise over the coming year. Since its March bottom, the Mouse House has seen its share price rise 73.5% to its current level of $149.09. The stock has been buoyed by the fact that the company held $23.1 billion in cash on the balance sheet at the end of summer, which should be enough to fund near-term expenses during the final leg of the global pandemic.
Also, despite the shutdown of parks, resorts and cruise lines, Disney still managed to generate $454 million in free cash flow during its most recent quarter. With many of its theme parks starting to re-open on a limited basis, things can only go up for the Mouse House.
On the date of publication, Joel Baglole held long positions in C and DIS.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.est