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13 Stocks to Play a Relocked Economy

July 09, 2020

No, we’re not done with the virus. No vaccine… no complete treatment… and more scientific studies of even asymptomatic victims showing signs of lasting and highly threatening impacts on health that might require a lifetime of treatments. Again, not done.

The big problem around the US is that too many folks equate unlocking with an “all-safe” signal. It isn’t. COVID-19 cases are spiking way above where they were ahead of and during the lockdowns.

US COVID-19 Cases Daily Change—Source: Bloomberg Finance, L.P.

Yet, the stock market doesn’t seem to care for now. The S&P 500 Index returned a record 20.5% for the second quarter alone—better than any single quarter since 1998—and is now just a couple of percentage points shy of being positive year to date. The index is positive by about 8% over the trailing year.

S&P 500 Index—Source: Bloomberg Finance, L.P.

Economic news has been supporting the market. Jobless claims continue to drop, and continuing claims are also falling. Meanwhile, both job openings and nonfarm payrolls are seeing a surge with millions upon millions of new or returning jobs.

Retail sales jumped by 17.7% in the last monthly report, and consumer comfort as tracked by the Bloomberg Consumer Comfort Index is now rebounding.

Businesses are reporting better current conditions as reported by the Federal Reserve Bank of New York, and the outlook for six-months out is not only rebounding but is closing in on similar levels seen in 2015-2016.

S&P 500 Index Member Compiled Sales and Earnings Guesses—Source: Bloomberg Finance, L.P.

Wall Street is rolling out estimates on sales and earnings for the companies inside the S&P 500. They’re guessing that both will be down this quarter but that they’ll somehow resume their climb into the first two quarters of 2021. This is helping the stock market.

But…

Spiking cases are resulting in state and local authorities changing the rules on what businesses can remain open and under what conditions. And others are pausing unlocking plans.

It isn’t too farfetched a proposition to think that restrictions or even a full relocking could take place in the near future.

That won’t be taken positively by the stock market. So, to safeguard your portfolio, buy the stay-at-home and remote-work companies that are capitalizing on the new normal.

Let’s start with Amazon (AMZN), which has been doing well for its cloud computing as well as streaming content alongside the go-to necessities it delivers to everyone’s door. It will be the safe haven for a relocked economy.

Next is Microsoft (MSFT), which is also a leader in cloud services as well as the software for both work and play at home. MSFT is also rolling out a much more tolerable version of video meetings. And it has one of the best gaming platforms, which is being updated for stay-at-home distractions.

To keep the data flowing and stored, you need data storage companies. And two great ones to look at right now are Digital Realty Trust (DLR) and Corporate Office Properties (OFC), which both have major contracts with Amazon.

Of course, to get the data moving, you need AT&T (T) and Verizon (VZ), which also come with ample dividends.

And while more people will be staying at home, the essential food and consumer staples will remain in demand.

Procter & Gamble (PG) and Colgate-Palmolive (CL) have the home front covered. And for packaged food, I continue to like Hormel Foods (HRL) and Mondelez (MDLZ) as well as the global behemoth (which also feeds your pets) Nestle (NSRGY).

And from the Amazon boxes and bags to all the rest of the trash and recyclables that are being turned into clean, ESG-compliant power through energy-from-waste (EFW), there’s Waste Management (WM).

Finally, don’t forget about that the Federal Reserve is buying all sorts of bonds and will likely buy more if the country starts to relock.

Consider the US corporate bonds run by the same company that the Fed contracts to buy bonds: BlackRock. The BlackRock Credit Allocation Income Trust (BTZ) provides lots of yield now and to follow, and the fund is at a discount to net asset value (NAV) for a bargain buy right now.

If you look back at this past February and what you wish you had in your portfolio going into the last lockdown but didn’t, you now have another chance to stock up for the next viral mess.

All My Best,

Neil George
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life