Keep these stocks on your radar.
Projections for the shape of the economic decline and recovery read like alphabet soup. Will it be a short V-shaped bounce? Will the worst part drag on before we see a rebound, making the shape look like a U? This remains uncertain. But whenever the economic recovery does begin to get real legs under it, there will likely be a renaissance of investing in companies that have survived the downturn and can provide experiences people haven’t been able to access, says Eric Schiffer, CEO of the Patriarch Organization, a private equity firm. Those experiences include eating at restaurants and going to concerts and theme parks, he says. Beyond experiences, other types of companies also stand to see a resurgence in demand once the economy regains its footing. Here’s a look at six stocks to buy for the reopening economy.
Starbucks (ticker: SBUX)
This ubiquitous international coffee chain has been riding a rising tide as states across the country relax their stay-at-home orders, recently announcing that it would have most of its company-operated U.S. stores open by the end of last week under modified operations. “I think consumers will gravitate to trusted brands as concerns about safety remain,” says Tim Bain, president of Spark Asset Management Group. Despite the reopenings, Starbucks stores won’t be oases for remote working or lounging with a book as they were before the pandemic, at least not for a while. But Starbucks’ strong drive-through presence and an industry-leading digital platform supportive of carryout orders make it “one of the best-positioned restaurants to adapt to a new normal,” says Will Reese, director of equity research at UMB Bank.
Howard Hughes Corp. (HHC)
Bain thinks that the economy will start to open back up slowly, as people first venture out locally and participate in activities within driving distance of their homes. That scenario would put Howard Hughes in a good position because it is a developer of master-planned communities and mixed-use properties. “While their exposure to commercial real estate could drag on the stock, a reopening of the economy should benefit the bulk of their portfolio,” he says. Like many of the best stocks to buy as America reopens, Howard Hughes is well below where it was trading before the pandemic, potentially leaving shares plenty of upside potential if this thesis pans out.
Live Nation Entertainment (LYV)
One thing many people are likely to want to do as soon as they can safely leave their homes is go to concerts. “With millennials favoring experiences over tangible goods and baby boomers desiring to feel young again, the culture of live music has never been stronger,” Bain says. Live Nation, an events promoter and venue operator that owns Ticketmaster, could be well-poised to take advantage of this culture. In commentary accompanying its recent financial results, the company’s CEO Michael Rapino said show volume and fan attendance can return to pre-pandemic levels in 2021. Rapino said most fans are holding on to their tickets for rescheduled shows even when they could get refunds. “We know from fans that demand will be there when the shows return,” he added.
Penn National Gaming (PENN)
This Pennsylvania-based casino and racetrack company has been moving into online sports betting. Bain believes that financially strapped states might be willing to open up to online sports betting sooner than expected as a way to generate revenue. In addition to the online aspect, Penn National stands to benefit from traditional casinos being able to reopen, though Bain cautions that will be at reduced capacity. While the company’s shares have come back some from their single-digit March lows to close at $17.75 on Tuesday, they’re well off their 52-week high near $40 from February. “I believe the stock still represents good value,” Bain says.
The Walt Disney Company (DIS)
Even though the pandemic has led to canceled sporting events, closed theme parks and delayed movie releases, Reese expects Disney to generate positive cash flow this year. With its strong balance sheet, Reese thinks Disney’s recent announcement to suspend its dividend was not done out of financial necessity but was instead a “good faith move,” as Disney has had to furlough tens of thousands of employees. ESPN will be the Disney asset that recovers the quickest as sports return on a limited basis, he says. However, Reese doesn’t expect Disney’s theme parks to return to normal until a vaccine is widely available. As economies around the world reopen, he thinks Disney could trade up to $150 per share – roughly 40% higher than today’s levels.
As restaurants and hotels closed or drastically reduced operations, demand for cleaning supplies and services from Ecolab have taken a hit. But Reese thinks the company’s earnings will hold up better than those of its customers because, for one example, restaurants will still need Ecolab’s products even if they are only open for carryout or delivery. The company’s diversified global customer base also helps. Even as sales to full-service restaurants and hotels have decreased, Ecolab is seeing increased demand in its food and beverage, health care and food retail businesses. “As some of Ecolab’s largest end markets begin to open up for business, we think demand will recover significantly,” Reese says, adding that he thinks the company’s stock can trade up to $250 a share. Shares closed Tuesday at $194.20.