What will you do with the government’s latest relief aid? A second stimulus payment of $600 is on the way for millions of Americans. As equity sentiment remains bullish, the stimulus check, or a part of the airdrop, could be well spent in trading and investment. This column will discuss seven stocks to buy with the stimulus check.
In the first round of $1,200 payments last spring, some 36% of Americans put the money into savings and 35% used the funds to repay debt. Only 29% of spent their stimulus checks on consumption. In a Federal Reserve survey of stimulus recipients on how they planned to use a second check, savings increased to 45% and debt repayment dropped to 35%.
I have focused on stocks from different sectors that could trend higher in the medium-term. I would not be surprised if this list of stocks helps in doubling the value of that stimulus check in the next six to 12 months.
Open to suggestions? Let’s discuss those seven stocks to buy with the stimulus check:
- ObsEva (NASDAQ:OBSV)
- Lockheed Martin (NYSE:LMT)
- Star Peak Energy Transition (NYSE:STPK)
- Aphria (NASDAQ:APHA)
- Newmont Corporation (NYSE:NEM)
- Nio (NYSE:NIO)
- JPMorgan Chase (NYSE:JPM)
Stocks to Buy With Your Stimulus Check: ObsEva (OBSV)
Among small-caps, ObsEva is among the names to buy with your stimulus check. OBSV stock currently sports a market capitalization of $129 million. I wouldn’t consider a big exposure to the stock. However, if the company’s plans remain on-track, the stock can deliver multi-fold returns.
This is a clinical-stage biopharmaceutical company focused on development and commercialization of novel therapeutics for serious conditions that compromise a woman’s reproductive health and pregnancy.
The company has already submitted a marketing authorization application for Yestly in Europe for uterine fibroids. Additionally, the company is in discussion for commercial partnership for Yestly. Another trigger for stock upside is the U.S. regulatory filing in the first half of the year. The company will also be announcing further results from Phase 3 trials in the first quarter of 2021.
Besides Yestly, the company has two other clinical studies in Phase 2 and Phase 3, respectively. Ebopiprant has the potential to delay pre-term birth. Nolasiban has the potential to improve live-birth rates following IVF and embryo transfer. The next few years can be exciting for the company if clinical trials deliver positive results.
It’s worth noting that the average target price for the stock among seven analysts is $11.83. With multiple catalysts on the horizon, some exposure to OBSV stock can be considered. I would not be surprised if the stock doubles on the news of a commercial partnership.
Lockheed Martin (LMT)
It would be nice to hold a stock that can generate regular income from the stimulus check. Lockheed Martin currently has an annual dividend pay-out of $10.40.
It also makes sense to consider a stock that is trading at an attractive forward price-to-earnings ratio of 14.1. LMT stock, which has declined by 15.7% in the last 12 months, should be among the stocks to buy with your stimulus check.
After an extended period of sideways movement and consolidation, LMT stock looks ripe for a break-out on the upside. On the business development front, there are factors that support the upside thesis.
For Q3 2020, the company achieved record quarterly sales of $16.5 billion. In addition, the company has an order backlog of $150 billion, which provides clear cash flow visibility. Order inflow for Q4 2020 has been robust.
Recently, Lockheed Martin also announced an agreement to acquire Aerojet Rocketdyne (NYSE:AJRD) for a total transaction value of $4.4 billion. This acquisition will strengthen the company’s capabilities in aerospace and defense rocket engine.
Coming back to the dividend potential, Lockheed Martin reported operating cash flow of $6.4 billion for Q3 2020. This implies an annualized OCF of $25 billion. Given the cash flow potential, I expect dividends to increase. Therefore, investors are positioned for dividend gains, capital gains and dividend growth with LMT stock.
Star Peak Energy Transition (STPK)
In the last year, there have been some attractive investment opportunities among special purpose acquisition companies (SPACs). Star Peak Energy Transition is one SPAC that is likely to be an out-performer.
Last month, Star Peak Energy announced a business combination agreement with Stem Inc. The latter is a provider of artificial intelligence-driven clean energy storage systems. With President-elect Joe Biden focused on the clean energy sector, it’s a good time for listing. Stem claims to be the first smart energy storage company to be listed in the U.S.
Stem also has a robust backlog of orders. As of Q3 2020, the company’s pipeline was $2.7 billion. Recently, the company was awarded 68MWh in new smart energy storage projects. The company believes that the total addressable market is worth $1.2 trillion. If order inflow remains robust (very likely), STPK stock can continue to trend higher.
The company expects to see sales of $147 million for the year. Revenue is expected to increase to $944 million by FY2025. Considering the industry tailwinds and the company’s outlook, I am bullish on STPK stock.
I would also include one cannabis stock in the list of stocks to buy with your stimulus check. Aphria is attractive and positioned for sustained upside in the next 12-24 months.
Recently, Aphria announced a merger with Tilray (NASDAQ:TLRY) to create the largest global cannabis company. I am bullish on the merger, which comes at a time when the sector has potentially big tailwinds. Besides potential growth in the United States and Canada, the possible legalization of cannabis in Mexico is likely to be a game changer. In terms of regional expansion, Tilray and Aphria already have presence in Europe. The company estimates that the European market size for cannabis is likely to be $3.9 billion by FY2025.
It’s also worth noting that the merged entity will have a pro-forma cash position of $454 million. This would provide financial flexibility for product innovation and growth. Another important point to note is that Aphria has reported positive EBITDA for the last six quarters. The combined entity will be positioned for EBITDA growth and positive operating cash flows. The merged entity will have a comprehensive cannabis 2.0 portfolio, which can also boost EBITDA margin.
Overall, APHA stock is worth considering at current levels. The merged entity is likely to be a value creator with positive industry tailwinds.
Newmont Corporation (NEM)
In my view, it makes sense to buy some gold with the dollar stimulus check. Exposure to Newmont Corporation is a good proxy for buying physical gold. The stock has been sideways for the last six months and I believe that a break-out on the upside is imminent.
With gradual economic recovery, expansionary monetary policies are likely to sustain. This will ensure that gold remains firm at higher levels. Newmont Mining is well positioned to benefit from higher gold prices.
As of December 2020, the company reported total liquidity of $7.8 billion and net-debt-to-adjusted-EBITDA of 0.4. With a strong balance sheet and a robust project pipeline, the company expects to sustain production over the next decade.
For Q3 2020, Newmont Mining reported free cash flow of $1.3 billion. This implies an annualized FCF of $5.2 billion. Even if gold gradually trends higher, the company is positioned to increase dividends and with higher FCF, NEM stock will trend higher.
Overall, I like Newmont Mining with the company having a low all-in sustaining cost, strong balance sheet and one of the largest gold reserves in the industry. NEM stock has a low beta of 0.15 and that’s another reason to consider the shares with markets trading at expensive valuations.
Given the industry tailwinds, it’s important to have electric vehicle stocks in any portfolio. Not just for the year, but for the next decade. NIO stock has skyrocketed in the last one year. However, I believe that the stock will continue to trend higher. I would not hesitate in considering some exposure to Nio stock at current levels and averaging down on corrections.
The first trigger for Nio stock is sustained growth in vehicle deliveries. The company has also unveiled the new sedan and with portfolio diversification, I expect vehicle deliveries to remain robust. European expansion is another trigger for Nio stock. Europe is likely to be the second-biggest EV market after China in the coming years.
From a financial perspective, Nio has ample cash buffer. As of Q3 2020, the company reported cash and equivalents of $3.3 billon. I don’t see further equity dilution in the near term. Additionally, as vehicle deliveries increase, EBITDA-level profitability is likely to be achieved within the next few quarters. Positive operating cash flows will be another stock upside trigger.
Overall, Nio stock has surged in the last year. However, the upside was from deeply oversold levels. Considering the growth outlook for the coming years, Nio stock is not inexpensive here.
JPMorgan Chase (JPM)
The banking sector has been an under-performer for the past year. Shares of JPMorgan Chase have remained sideways on a one-year stock chart. However, in the last six months, the stock has rallied by 47%.
I believe that JPM stock has more upside and is attractive at a current P/E ratio of 17.5. In addition, the company has a healthy dividend yield of 2.65%. And dividends are sustainable.
The Federal Reserve expects U.S. GDP growth at 4.2% for the current year. Bank of America Securities analysts note that “75% of bank stocks’ out-performance to the S&P 500 index occurs in the first year of a recovery.” Therefore, there is a strong reason to be bullish on JPM stock as the economy crawls back to normalcy.
It’s also worth noting that the core business has remained depressed for JP Morgan. However, this has been offset by growth in the corporate and investment banking segment. The banks’ asset and wealth management business has also delivered strong quarterly numbers. Once the core lending business gains traction, JPM stock upside can be meaningful.
Therefore, I would include JPM stock on the list of stocks to buy with your stimulus check. The country’s biggest bank is due to report earnings on Jan. 15.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.