Broader markets have continued to rise, in part due to the likelihood of an additional U.S. fiscal stimulus package. For a large number of Americans, a $1,400 stimulus check could be on the way. So, those who are able to add this money to their long-term portfolios are already researching stocks to purchase. As such, today’s article introduces seven stocks to buy in order get the most out of more stimulus.
Why should you invest with your check from the government? Well, recent research conducted by David Chambers, Elroy Dimson and Charikleia Kaffe of Cambridge University highlights the following:
“In every country for which there is a continuous time series of price and dividend data, common stocks have generated a substantial long-term real return and proved to be the best performing asset class over the last 120 years.”
Put another way, buy-and-hold investors are likely to benefit from investing their savings into equities. Therefore, for those who can afford it, investing the next stimulus check could be a great way to use it.
You might be wondering: which stocks should you buy for the long run? For one, businesses with strong recurring revenue tend to be robust investments. Additionally, companies that can innovate and address a market niche should also be on any investor’s radar. Finally, it’s always pertinent to look at past winners and consider buying their dips.
All that said, here are seven stocks to buy with the next round of stimulus:
- ARK Innovation ETF (NYSEARCA:ARKK)
- AT&T (NYSE:T)
- Bank of America (NYSE:BAC)
- Facebook (NASDAQ:FB)
- Starbucks (NASDAQ:SBUX)
- Qualcomm (NASDAQ:QCOM)
- VanEck Vectors Gold Miners ETF (NYSEARCA:GDX)
Stocks to Buy: ARK Innovation ETF (ARKK)
52-week range: $33 – $159.69
1-year price change: Up 171.2%
Dividend yield: 1.31%
Expense ratio: 0.75%
The ARK Innovation exchange traded fund (ETF) is actively-managed fund and invests in companies that are likely to be innovators. For example, these firms might be introducing a new, technologically enabled product or service that could be disruptive to the market.
The fund — which has 55 holdings — began trading in October 2014. Net assets are around $17.7 billion. Health Care (31.5%), Technology (21.4%) and Communication (24.4%) lead the sector allocations. What’s more, the ETF’s top ten holdings comprise close to 45% of total net assets.
Leading holdings in the fund include electric vehicle (EV) darling Tesla (NASDAQ:TSLA), streaming-platform operator Roku (NASDAQ:ROKU) and the virtual healthcare services provider Teladoc Health (NYSE:TDOC). The fund also invests in several genomics companies, such as Crispr Therapeutics (NASDAQ:CRSP) and Invitae (NYSE:NVTA).
So far in the year, ARKK is up about 27.7%, a remarkable performance following the solid gains of 2020. We live in an era of technology and innovation and this ETF offers a good basket of disruptive companies. As such, long-term investors may regard any dips in price as an opportunity to buy into ARKK stock with their stimulus check.
AT&T (T)
52-week range: $26.08 – $38.68
1-year price change: Down 24.4%
Dividend yield: 7.22%
AT&T operates in telecommunications, media and technology and is based in Dallas, Texas. Its segments including AT&T Communications, WarnerMedia and AT&T Latin America.
The company’s fourth-quarter financial results released on Jan. 27 showed revenue of $45.7 billion, down 2.3% year-over-year (YOY). On top of that, adjusted earnings per share (EPS) for the quarter was 75 cents, down 15.7% YOY. However, free cash flow stood at $7.7 billion. That strong cash generation got the Street’s nod of approval. CEO John Stankey cited:
“We ended the year with strong momentum in our market focus areas of broadband connectivity and software-based entertainment. […] And the release of Wonder Woman 1984 helped drive our domestic HBO Max and HBO subscribers to more than 41 million, a full two years faster than our initial forecast.”
Forward price-earnings and price-sales ratios for the company are 9.19 and 1.18, respectively. Needless to say, AT&T did not have a good 2020. Its high debt load has been a drag on performance. But the bulls note that its valuation levels are attractive and the dividend yield stands over 7%. So, I believe long-term investors could consider using their stimulus check to buy into T stock around these levels.
Bank of America (BAC)
52-week range: $17.95 – $35.08
1-year price change: Down 2.31%
Dividend yield: 2.16%
Next on my list of stocks to buy with your stimulus check is Bank of America. Based in Charlotte, North Carolina, BAC is one of the leading financial institutions in the United States, “serving approximately 66 million consumer and small business clients.”
According to the company’s recent financial results, Q4 revenue was $20.1 billion, a decline of 10% YOY. Net income decreased, too, by 21.4% YOY to $5.5 billion. Diluted EPS was 59 cents, down 20.3%. However, right now BAC has cash and equivalents of $380.4 billion, 177% higher YOY. In the company’s report, CEO Brian Moynihan noted:
“In 2020, we earned nearly $18 billion and achieved several key strategic objectives: gaining market share in deposits, expanding our digital leadership, and adding thousands of wealth management clients […] we gained market share in investment banking and supported clients with liquidity and superior trading execution.”
BAC stock’s forward price-earnings and price-sales ratios are 13.89 and 3.4, respectively. Like AT&T, Bank of America also had a tough year. Lower interest rates impacted its net interest income. Plus, the company had to make provisions for bad loans, especially due to the recent increase in unemployment.
Yet, BAC stock’s price has remained resilient overall, partly because its operations are well-diversified. For example, revenue from investment bank operations have been substantial. So, I believe this bank will start creating shareholder value in the quarters to come. Meanwhile, you can enjoy its juicy dividend yield.
Facebook (FB)
52-week range: $137.10 – $304.67
1-year price change: Up 28.35%
Dividend yield: N/A
Based in California, Facebook is a well-known and successful social media giant which has platforms like Instagram, Messenger, WhatsApp and Oculus — as well as its namesake, Facebook — all under one roof.
FB announced its Q4 financials on Jan. 27. Revenue came at $28.07 billion. Net income showed a 52.7% increase over the year-ago period and reached $11.21 billion. Diluted EPS grew from $2.56 in Q4 of 2019 to $3.88 in 2020. Finally, free cash flow increased 90.5% YOY, jumping from $4.84 million to $9.22 million. In the report, CFO David Wehner commented:
“[W]e expect year-over-year growth rates in total revenue to remain stable or modestly accelerate sequentially in the first and second quarters of 2021. In the second half of the year, we will lap periods of increasingly strong growth, which will significantly pressure year-over-year growth rates […] There is also continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments […] we are closely monitoring the potential impact […]”
Currently, FB stock’s forward price-earnings and price-sales ratios are 24.34 and 7.16, respectively. But one important thing to note its that Facebook’s advertising business model relies on heavy data-collection. As Wehner alluded to in his statement, there have been growing concerns about potential privacy and legislative issues when it comes to that advertising. That’s not just in the States, but also overseas.
Because of this, it may be easy to overlook the company’s strong financial results and earnings potential. However, I believe 2021 will be another year of double-digit growth for FB shareholders. So, if you come to find that the new stimulus check is burning a hole in your pocket, consider investing in FB stock.
Starbucks (SBUX)
52-week range: $50.02 – $107.75
1-year price change: Up 18.83%
Dividend yield: 1.71%
Famous specialty-coffee retailer Starbucks has been a darling of Wall Street for a long time. SBUX serves customers with its company-owned and licensed locations, both in the U.S. and worldwide.
According to Starbucks’s Q1 2021 metrics, net revenue was $6.7 billion, a 5% YOY decline. Management mainly pointed the finger at the pandemic. Moreover, its bottom line came at $622.2 million, a 29.8% drop from the prior year. Non-GAAP earnings per share fell from 79 cents to 61 cents. Lastly, the company’s cash and equivalents were $5.02 billion.
In its report, CEO Kevin Johnson noted how things are starting to look positive for the company in the new year. Johnson stated, “Investments in our partners, beverage innovation and digital customer relationships continued to fuel our recovery and position Starbucks for long-term, sustainable growth.”
SBUX stock’s forward price-earnings and price-sales ratios are at 37 and 4.35, respectively. All in all, Starbucks is well-regarded for its innovative approach to the industry. Over the years, it has introduced new coffee drinks and other food and beverage items that have encouraged customers to spend more in stores. I expect that trend to continue in the coming quarters, as SBUX sees a return in traffic. Stimulus check in hand, I would look to buy the dips in this name’s share price.
Qualcomm (QCOM)
52-week range: $58 – $167.94
1-year price change: Up 64.47%
Dividend yield: 1.76%
Semiconductor titan Qualcomm had a great year in 2020. It is the undisputed leader in the wireless handset market. Wall Street holds this innovator in high esteem. However, the latest earnings results put pressure on shares of QCOM stock. That could make for a great entry point for investors looking to invest there stimulus check.
Recently, Qualcomm announced Q1 financials, showing that its non-GAAP revenue increased by more than 62% YOY to $8.23 billion. The bottom line also more than doubled, reaching $2.5 billion. Diluted EPS — which was 80 cents a year before — jumped to $2.12. Finally, cash and equivalents came to nearly $7.08 billion. On the results, CEO Steve Mollenkopf noted the following:
“We delivered an exceptional quarter, more than doubling earnings year-over-year due to strong 5G demand in handsets and growth in our RF front-end, automotive and IoT adjacencies, which drove record earnings in our chip business.”
As far as outlook goes, Qualcomm expects to generate somewhere between $7.2 and $8 billion in revenues for Q2 of 2021. Furthermore, management gave non-GAAP diluted EPS guidance at the $1.55 to $1.75 range.
Lastly, when it comes to value, QCOM stock’s forward price-earnings and price-sales ratios are 20.14 and 5.4. In my opinion, the recent decline in price could be a good opportunity to buy shares of the chip giant.
VanEck Vectors Gold Miners ETF (GDX)
52-week range: $16.18 – $45.78
1-year price change: Up 21.09%
Dividend yield: 0.53%
Expense ratio: 0.53%
The last name on this list of stocks to buy with your next stimulus check is the VanEck Vectors Gold Miners ETF, a fund that invests in gold miners. GDX stock — which represents stakes in 52 different stocks — tracks the returns of the NYSE Arca Gold Miners Index. The fund started trading in May 2006 and its net assets currently total $15.1 billion. Looking at its weightings by country, this ETF’s net assets stretch across Canada (44.41%), the U.S. (17.39%) and Australia (14.57%).
GDX’s top ten holdings comprise nearly 60% of the fund. The leading names include Newmont (NYSE:NEM), Barrick Gold (NYSE:GOLD) and Franco-Nevada (NYSE:FNV).
After a strong 2020, the year started on a subdued note for gold miners. Year-to-date, GDX is down by over 4.5%. However, if you are bullish on gold, this ETF could be your best way to invest. Analysts expect gold production — which has suffered over the past 12 months — to rebound in the coming quarters. If that increase in output is accompanied by an increase in the price of gold, then miners would continue to create shareholder value.
On the date of publication, Tezcan Gecgil held a long position in T stock.
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. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
