The U.S. economy is gradually reopening and the end of the novel coronavirus pandemic is expected to have a significant impact on the stock market. Analysts, pundits and investors are talking about how investors should position their portfolios, staking out stocks to buy to capitalize on the reopening. Some are talking about a rotation into cyclical stocks, while others are sounding the death knell for once-high-flying technology and stay-at-home stocks.
Let’s take a look at seven stocks to buy as reopening comes into focus. While these may all be familiar names, it’s worth a quick review in light of the pandemic’s impact.
- McDonald’s (NYSE:MCD)
- American Airlines (NASDAQ:AAL)
- Walmart (NYSE:WMT)
- Bank of America (NYSE:BAC)
- Royal Caribbean Cruises (NYSE:RCL)
- MGM Resorts (NYSE:MGM)
- Walt Disney (NYSE:DIS)
Stocks To Buy As Reopening Comes Into Focus: McDonald’s (MCD)
Like most fast food chains, McDonald’s has adapted its operations to the Covid-19 pandemic: operating its drive thru windows while in-person dining was restricted, beefing up its app and offering pick-up food options, and working with a growing number of independent food delivery companies.
The efforts have kept McDonald’s and its nearly 40,000 franchise restaurants afloat during the global pandemic. However, despite its best efforts, McDonald’s was not immune to the worldwide downturn. In the first half of 2020, sales declined 29% from a year earlier while its net income dropped 67%. People sheltering at home, many of whom had less discretionary income to spend, hitting McDonald’s bottom line.
Yet the Golden Arches should shine brightly as economies all over the world gradually reopen. The company is already taking steps to hasten its own recovery. McDonald’s launched a partnership with Travis Scott this past autumn that saw the popular singer promote a $6 meal deal. The promotion proved to be extremely successful. The company has also been converting more of its restaurants to franchisees rather than outright owners, which should help boost revenue through increased franchisee fees and royalties.
At $208.78 a share, MCD stock is up 52% from its doldrums last March, but still below its 52-week high of $231.91.
American Airlines (AAL)
Airplanes are literally sitting on the tarmac around the world, waiting to takeoff. And the time will come they’ll take flight again as Covid-19 recedes and people feel safe returning to the friendly skies. And among the many U.S. airline stocks, American Airlines is the one investors should have in their portfolio.
As the largest air carrier in the entire world, American will benefit from a rebound in air travel, not just in the U.S. but as far away as New Zealand. Like all carriers, Fort Worth, Texas-based American Airlines has been devastated by the pandemic. AAL stock fell nearly 70% last spring, from $30.78 a share to $9.50. While the share price has since recovered nearly 75%, to $16.44, it remains well below its 52-week high.
News of vaccine distributions around the world has lifted AAL stock in recent weeks, and it also got a boost from a pick-up in travel during the recent year-end holidays. But investors should look for the carrier and its shares to really jet higher in the second half of 2021.
Walmart is a can’t-lose stock in many respects. The world’s largest retailer with 11,500 stores, 2.2 million employees and annual revenue of more than $500 billion, continued to perform well during the global pandemic. In its most recent fiscal third quarter, ended Oct. 31, 2020, same-store sales rose 6.4% while online sales jumped 79%. If anything, the Bentonville, Arkansas-based company used the pandemic to accelerate growth of its e-commerce business, which has led many analysts to speculate that it could take on rival Amazon (NASDAQ:AMZN) in coming years.
Now, as economies around the world reopen, Walmart is like to do even better. Bigger stimulus checks that have been promised by president-elect Joe Biden, along with extended unemployment benefits, should keep American consumers spending. And if people turn away from online shopping as Covid-19 retreats, it will likely result in increased foot traffic at Walmart’s brick-and-mortar outlets.
WMT stock has risen nearly 30% since the start of 2020 and is up about 40% since stock markets hit rock bottom last March. Shareholders are likely to be rewarded with continued growth in 2021, along with a 1.47% dividend yield.
Bank of America (BAC)
After languishing for most of 2020, bank stocks are once again on the rise. And Bank of America, the second biggest U.S. lender by assets, has been heading straight up since the end of October, rising 44% to its current price of $33.99 a share. And Bank of America is expected to continue performing well as the U.S. economy reopens, consumers ramp up their spending and with higher interest rates on the horizon for 2022.
Shareholders of BAC stock are likely to benefit throughout 2021 as the reopening gathers momentum. Indeed, as the American economy steadily improves this year, consumers and businesses are likely to begin repaying loans in earnest, limiting Bank of America’s credit loss risk and bolstering its revenues.
Bank of America has also announced a share repurchase program for 2021, which should help send its stock price even higher in coming months. Investors should also be aware that Warren Buffett has been buying BAC stock hand over fist in the past year. In fact, Buffett bought more Bank of American stock than other security during the pandemic.
Royal Caribbean Cruises (RCL)
People who like going on cruises, like it a lot. And they can’t wait to set sail again, leaving the pandemic behind them as they travel to tropical locations in the Caribbean and beyond. And among cruise lines, Royal Caribbean is king with about $11 billion in annual revenue before Covid-19 devastated its business. In the second quarter of 2020, Royal Caribbean’s revenue tanked 93% compared to the same quarter of 2019.
The company has forecast that its full-year sales for 2020 will come in 70% below 2019 levels. The company’s total debt has also swelled to nearly $20 billion. Not good. But if there is a company that is likely to come roaring out of the pandemic, it is Royal Caribbean. Travel demand is forecast to explode once the pandemic is truly behind us and the economy fully reopens.
Demand for cruises has remained strong throughout the global pandemic as many people have pushed out their trips to the second half of 2021 and even into 2022 and 2023. RCL stock is still nowhere near its pre-Covid level of $135 a share, but it has risen nearly 300% from its March low of $19.25 a share to its current level of $75.84. Things can only improve further from here.
MGM Resorts (MGM)
It’s not just Atlantic City and Las Vegas that are going to benefit from the economic reopening in coming months. Hotels and casinos all over the U.S. and around the world will reap rewards once people are able to comfortably sit next to each other at slot machines and card tables. And MGM Resorts is better positioned than most of its competitors to ride the return of gambling, gaming and tourism.
The company owns hotel and casino properties in several U.S. states, including Las Vegas, Michigan, New York, New Jersey, Mississippi and Maryland, along with several properties in China. Before the pandemic, MGM was re-branding itself as primarily a gambling and sports betting company. And that repositioning should pay dividends for the company and its shareholders as casinos not only welcome back patrons but sports return — all sports, including major college athletics and tournaments. March Madness, anyone?
Investors who bought MGM stock when it cratered last March have been rewarded with a 324% gain. The share price has risen from $7.14 to $30.28 over the past 10 months, though it remains under its 52-week high of $34.64.
Walt Disney (DIS)
The Disney+ streaming platform saved Walt Disney during the pandemic. In fact, Covid-19 helped to drive subscriptions of Disney+, which had only been in operation for five months when the virus forced people to shelter-in-place at home. The result is that Disney+ now boasts a total of 75 million subscribers and is largely winning the so called “streaming wars.”
The success of the streaming side of Disney’s business has helped to offset the sharp downturn in the company’s theme parks and cruise ships during the global pandemic — a downturn that caused the company to lose more than $2 billion and layoff 32,000 employees. In the second half of 2021, Disney is likely to grow exponentially as each of its business units begin firing on all cylinders.
Streaming subscriptions are likely to continue growing while the reopening of the company’s theme parks, attractions and cruises will further boost revenues and profits.
It’s all good news for DIS stock, which has doubled to $173.43 since its bottom in March 2020. The share price gains have been largely fuelled by the positive news concerning streaming subscriptions. Expect more good news throughout 2021 as the economy reopens.
On the date of publication, Joel Baglole held long positions in MCD 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.