With the Delta variant of the novel coronavirus peaking and likely to soon fade, fiscal stimulus about to ramp up and stock markets continuing to hit record levels, now is a good time for conservative investors to buy Dow stocks that are well-positioned to benefit from these trends.
On Sept. 2, Yahoo Finance reported that the summer wave of the coronavirus that has hit the U.S. may finally be peaking. The website also provided four reasons that the Delta variant may not spread to parts of the country that have not yet been hit by it.
Taking the thesis further, I recently hypothesized that the U.S. could reach herd immunity this month, effectively ending the pandemic.
Of course, if either of these theories pans out, consumer discretionary and energy stocks are very good places for investors to put their money. Also likely to boost energy and consumer discretionary stocks are the fiscal stimulus bills making their way through Congress.
One of those bills is a bipartisan measure that focuses on traditional infrastructure. So the stocks of companies that focus on that area are good names to buy for September.
Finally, stocks are hitting record levels, and the environment remains very favorable for equities, making investment banks a good place to be.
Given these points, I recommend buying the following Dow stocks for September:
Dow Stocks to Buy: Visa (V)
The credit card king would benefit from the increased consumer spending that would be unleashed by a weakening of the coronavirus in the U.S. and other countries.
What’s more, V stock has pulled back substantially recently, losing a little more than 6% in the last month. As a result, any rebound in Visa stock that would result from a weakening of the coronavirus would probably be quite strong.
Also likely to boost consumer spending, particularly among the middle and upper classes, are the fiscal stimulus bills and the record stock market levels.
Additionally, it’s difficult to think of a company that’s better insulated against inflation than a leading credit card network whose top line automatically climbs as consumer spending rises.
After its recent pullback, Visa’s forward price-earnings ratio of 31 is not too steep.
Chevron (CVX)
Oil prices should also get a boost from a rebound of consumer spending and the upcoming fiscal stimulus.
Chevron and other large oil companies look very well-positioned to benefit from multiple likely geopolitical trends. Despite pleas from the Biden administration, OPEC+ is not looking to raise supply, making oil prices more likely to climb going forward.
Moreover, the very problematic American pullout from Afghanistan has meaningfully weakened American power and prestige in the Middle East, making various enemies of the U.S. and its allies — especially ISIS, Iran, Iranian proxies, and Russia –much more likely to take aggressive steps in the region.
As a result, there’s a good chance that armed conflicts and terrorism will proliferate in the Middle East sooner rather than later, pushing oil prices higher.
Chevron’s 5.6% dividend yield is also, of course, very appealing. But I’d recommend holding the shares for six months or less, given the possibility of disruption to and worries about the oil sector arising from the rise of electric vehicles.
Dow Stocks to Buy: Caterpillar (CAT)
With the infrastructure bill including $110 billion for roads and bridges, $39 billion for public transit, $25 billion for airports and $17 billion for ports, huge demand should arise for Caterpillar’s construction equipment.
Since Caterpillar generates a meaningful amount of revenue from oil exploration equipment, it should benefit from higher oil prices as well. And as inflation greatly boosts the dollar value of minerals, its mining equipment business should really take off as well.
Even the EV revolution should help Caterpillar at the margins, as new power plants and EV charging stations are built.
Caterpillar’s top line jumped a hefty 29% year-over-year in the second quarter, and the conglomerate said it was benefiting from “higher end-user demand for equipment and services and the impact from changes in dealer inventories.”
CAT stock has a 2.15% dividend yield and has an attractive forward price-earnings ratio of under 17.
Goldman Sachs (GS)
The Fed looks set to continue to purchase large amounts of Treasury and mortgage bonds for the foreseeable future, keeping intact the huge profit center of Goldman and its investment bank peers.
Moreover, the economy looks poised to continue strengthening for a long time and equities are a good hedge against inflation. Finally, interest rates should remain quite low for a very long time, facilitating debt raises and M&A deals.
In July, Wells Fargo’s Mike Mayo agreed that the environment was likely to remain favorable for capital markets for a very long time.
“A lot of the outsized growth has remained (so far) and optimistic GDP projections point to more of the same in the near term,” Mayo wrote.
He was citing investment banking backlogs that were close to or had eclipsed records, along with the potential for increases in M&A.
For Q2, Goldman’s results beat analysts’ average expectations, as its Q2 top line jumped nearly 16% year-over-year. In a sign of confidence, the firm raised its quarterly dividend 60% to $2.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
