Despite the horrors of the novel coronavirus, one bright takeaway from this disaster is the mobilization of the federal government to do something unprecedented: inject cash directly into the hands of the American people. I just wish they would go a step further and give us all a tax holiday. Alas, that’s not happening. However, we could aim for the next best thing: strategizing stocks to buy with our tax refund.
Of course, a peculiarity of the American tax system – and really our society – is that a tax refund is really a euphemism of euphemisms. This is just a nice way of saying that you gave the feds an interest-free loan. But framing the topic like that wouldn’t feel too great for the masses. Therefore, you call it a refund and suddenly, everybody’s happy!
Anyways, many worker bees were unhappy about the changes in the tax code because their refund was less than expected. I’m going to get the bad news out of the way first: this might happen again for tax year 2020. That’s because many folks received unemployment benefits and withholdings here work differently than with a standard paycheck. However, if you do receive a sizable tax refund, you should consider strategizing ideal stocks to buy.
In large part, this is due to the present monetary dynamics. Everyone knows that benchmark interest rates have plummeted: that’s one of the reasons why affluent individuals bought up real estate. When money is this cheap, you don’t want to lose this once-in-a-blue-moon opportunity. But the same principle also applies to stocks to buy. Again, this explains the dichotomy between Wall Street and Main Street.
But even more critically, real interest rates – that is, interest with inflation backed out – have gone negative. Essentially, this means that you’re incurring a penalty for holding cash. That provides all the more incentive to seek growth, which may positively impact these stocks to buy:
- Amazon (NASDAQ:AMZN)
- Zoom Video Communications (NASDAQ:ZM)
- Vista Outdoor (NYSE:VSTO)
- 3M (NYSE:MMM)
- General Motors (NYSE:GM)
- Phillips 66 (NYSE:PSX)
- cbdMD (NYSEAMERICAN:YCBD)
- Mind Cure Health (OTCMKTS:MCURF)
Before you think I’m suggesting something reckless, please hear me out. I do not suggest that you go all-in on equities or any other asset class. I believe sound financial principles, such as diversification, is the way to go. However, with the negative interest-rate penalty I mentioned, you may want to allocate some portion of your tax refund to viable stocks to buy.
Stocks to Buy: Amazon (AMZN)
I know this is not the most popular topic because of the controversies associated with Amazon. Indeed, buying AMZN stock might seem an awful idea from a patriotic standpoint in that the underlying company is a vacuum cleaner, sucking the life out of small businesses.
Of course, small businesses represent the engine of the U.S. economy, yet they’ve also been the hardest hit during this pandemic. Still, reality dictates that you should at least consider Amazon in your list of stocks to buy with your tax refund.
Frankly, the e-commerce boon is not going anywhere. Online sales channels were already expanding like wildfire before the pandemic. But when the Covid-19 crisis occurred, the narrative hit overdrive. In the second quarter of 2020, e-commerce represented 16.1% of total retail sales, up 49% year-over-year.
Even when the pandemic fades, the convenience and increasing security of online retail will be difficult to give up. Also, that’s just one component of Amazon’s business. With so much to offer, particularly with its cloud services, AMZN stock is a powerhouse you can’t ignore (unfortunately).
Zoom Video Communications (ZM)
Naturally, Zoom Video Communications was one of the hottest stocks to buy in 2020. When the Covid-19 crisis first knocked us on our hind end, many folks must have felt that this was the end. Fortunately, cooler heads prevailed as the American business and academic communities rallied to initiate remote operations and learning.
Genuinely speaking, this mobilization was something all Americans should be proud about. Not all countries, including some developed ones, had the infrastructure and ingenuity to pull this off. Of course, this narrative truly helped skyrocket ZM stock.
But as the latest surge of coronavirus cases appear to be dwindling down – I’m going to say “appear to be” because I don’t want to jinx it – the bullish thesis for Zoom Video also waned. Between Oct. 19 through Dec. 31 of last year, ZM stock hemorrhaged nearly 41%.
However, it’s possible that some form of telecommuting and distance learning will be in place despite the vaccination rollout. Further, teleconferencing will be crucial for the next few years in terms of international interactions. With corporate budgets stressed, management teams will look for any way to save money.
Stocks to Buy: Vista Outdoor (VSTO)
Last year, gun sales soared to record levels as Americans feared a breakdown in social order. Frankly, it wasn’t a bad assumption. All the chaos that erupted in 2020, some of which spilled over into this year, presented all the confirmation you could possibly want. In addition, evidence from the Great Recession suggests that economic downturns fuel crimes. Not surprisingly, firearms manufacturers became some of the hottest stocks to buy.
However, guns need ammunition to operate. Suddenly, Vista Outdoor went from irrelevant to exceptionally pertinent in the blink of an eye. Yes, Vista did technically vacate the firearms industry. But it hung on to the ammunition business, which was quite fortunate. VSTO stock was an outperformer last year as gun-and-ammo buying panic hit the streets.
You might think that some of that panic cooled off. and perhaps the intensity of it has. Still, demand for firearms and ammunition remains strong. In part, that’s because while gun owners may not have much need to buy additional guns, you can never have too much ammo. With the Democrats potentially eyeballing strict gun control measures, VSTO stock should have a robust outing in 2021.
During the immediate fallout from the pandemic, 3M’s N95 respirators were suddenly hot commodities. Too bad you couldn’t find them anywhere as people panicked, hoarding these golden assets just in case of an apocalypse. Fortunately, that dire scenario never really occurred. However, MMM stock took some heat from the underlying company’s PR crisis.
With this critical infrastructure largely held in China, it was not a great look. Yes, the problem was a complicated one involving various multinational deals. In other words, it’s not entirely fair to say that 3M was selling out to China while Americans were dying. But perception often matters more than the truth, which again did not help the case for MMM stock.
However, moving forward, I believe 3M could enjoy steady gains throughout 2021 and perhaps even longer. True, Covid-19 infections thankfully have sharply declined from their early January peak. Nevertheless, we could see a dramatic societal shift in how we view epidemics. This is the first time in modern history where a catastrophe impacted every single one of us, irrespective of class, demographics or location.
While it’s still not the most popular investment, don’t ignore 3M in your research for stocks to buy. It could just surprise you.
Stocks to Buy: General Motors (GM)
Speaking of unpopular investments, including General Motors as one of the stocks to buy with your tax refund sounds like an absurd proposition. With the administration of President Joe Biden and its promise to push environmentally friendly policies, GM stock seems painfully anachronistic. No one wants to drive combustion cars anymore, which wouldn’t help GM or any of its rivals.
At least that’s the prevailing wisdom – and admittedly, it makes sense on surface level. All other things being equal, electric vehicles are quicker, more reliable, whisper quiet and should have a lower environmental impact. I say should have because I still wonder about the disposal impact of all those EV batteries when they finally reach their end of life. But that’s a different discussion for another day.
For now, I can see why people love EVs and would avoid investments like GM stock. Nevertheless, the main sticking point for the electric platform is price. You’ll notice that arguably the most credible competitor to Tesla (NASDAQ:TSLA) is Lucid Motors, which specializes in luxury EVs. Until electric cars become viable on the lower end of the income spectrum, I don’t see the innovation truly taking off.
Besides, it will be a gradual process. GM has time to sell its desirable SUVS, along with playing catch-up in the EV department, making it a contrarian play among stocks to buy.
Phillips 66 (PSX)
As with the narrative for combustion cars, gasoline stations especially don’t seem congruent with the Biden administration’s vision of America’s clean energy future. In fact, then-presidential candidate Biden caused quite a stir during the campaign trail when he called for a transition away from oil and gas. Further, his executive orders suggest that he’s going to make good on his environmental policies.
Should that worry stakeholders of Phillips 66 and PSX stock? On paper, it’s not the greatest thing in the world, let’s just be honest about that. Additionally, as a new generation of workers and consumers come of age, clean energy platforms will take on greater importance. While I’m not discounting these crucial factors, I still say they will take time to develop.
From where things stand, we may have decades of relevance for fossil fuels. Thus, Phillips 66 is a solid contrarian bet for stocks to buy with your tax refund.
Further, gasoline stations are everywhere. While growth of charging stations is exploding, the infrastructure will take time to develop. Combined with the greater economies of scale for combustion cars, PSX stock could shine as a 2021 recovery wager.
Stocks to Buy: cbdMD (YCBD)
Back during the cannabis boom, I was really bullish on the burgeoning sector. I saw it as a transformative market, one where suddenly illegal revenue was recognized and most importantly, taxable. Further, legalization will lead to legitimacy – and legitimacy leads to jobs. With two-thirds of Americans supporting legalization, it seemed like a win-win for almost everyone.
However, making cannabis isn’t exactly rocket science, which led to a dramatic rise in competition. The effect was most pronounced in Canada, where competition plus a licensing backlog led to inefficiencies and missed opportunities. Still, with the cannabis market stabilizing, now might be a good time to reconsider companies like cbdMD, which specializes in cannabidiol (CBD) products.
YCBD stock is off to a brilliant start this year, gaining nearly 54% since the beginning of January. This time around, though, I believe the momentum will be sustainable. Primarily, this is because of the Covid-19 crisis, which has impacted everyone. At the very least, issues such as insomnia have affected our collective health.
I’m not saying that CBD will cure insomnia or other ailments. However, interest is rising for natural, plant-based therapeutics. Therefore, I’d take a look at YCBD stock for the speculation side of your stocks to buy.
Mind Cure Health (MCURF)
Speaking of collective health, a growing crisis regarding the coronavirus pandemic has been mental pressure. While working from home sounds like fun, it’s actually incredibly stressful for many if not most Americans. Suddenly, you can’t get away from your family obligations, which can distract you from your work.
With budgetary pain occurring across several industries and institutions, now is not the time for worker bees to stand out for the wrong reason. This only ramps up mental strain, which may cause productivity-draining problems such as depression.
That’s where companies like Mind Cure Health can possibly alleviate the stress. Specializing in psychedelic-based therapy, MCURF stock represents exposure to an exciting and burgeoning health market. Likely, the recovery process from the economic and health woes of the pandemic will take time, bolstering the narrative for psychedelic medicines.
Also, opioid addiction was the crisis before the coronavirus. By providing a potentially superior controlled substance to sufferers, Mind Cure Health could be one of the most relevant ideas among stocks to buy for the next several years.
Still, keep in mind that MCURF stock is extremely speculative, so only put money down that you’re OK losing in case of a complete meltdown.
On the date of publication, Josh Enomoto held a long position in YCBD and MCURF.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.