3 Stocks Could Win Big As U.S. Passes Stimulus Package

No matter what side of the political divide you’re on, it's difficult not to agree that U.S. President Joseph Biden’s $1.9-trillion stimulus package will create winners and losers in the broader economy as well as in the stock market.

Many companies will see their sales boom as the fresh round of fiscal aid and extended unemployment benefits reaches millions of Americans. Some could direct this cash toward travel, dining out or starting home-improvement projects when the economy fully reopens.

Another factor creating market winners (and losers) is the growing trend during this pandemic of investing in equities. U.S. stimulus checks could fuel about $170 billion in retail inflows into the stock market, Deutsche Bank strategists wrote in a note last month. A survey of retail investors showed respondents planned to put 37% of their stimulus cash directly into equities, the note indicated.

“Retail sentiment remains positive across the board, regardless of age, income or when the investor began trading. Retail investors say they expect to maintain or add to their stock holdings even as the economy reopens.”

That said, long-term investors should avoid investing in speculative stocks, and instead put their extra cash into solid companies that have a track record of rewarding investors. With this theme in mind, below we’ve short-listed three stocks that are a good fit for this strategy:

Banks have had an amazing run since last summer. In an environment where the government is spending a record amount of cash to stimulate the economy, there are multiple reasons to be bullish about these financial institutions.

First, surging bond yields mean they will be able to earn a better rate spread on their loans to consumers and businesses. The favorable yield curve trend, when long-term rates increase faster than short-term, will likely continue due to increased consumer spending, stoking inflation. In addition, the reopening of the economy will create more demand for credit from those businesses that suffered during the pandemic.

In the banking space, we like JPMorgan Chase (NYSE:JPM), the largest U.S.-based lender due to its balance-sheet strength and the quality of its operations. Though JPM stock has risen more than 50% since September when we recommended it as a buy, there is still more room to run for this rally.

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While banks still can’t increase their dividends beyond what they paid out in the second quarter of 2020, as of December, the Fed has allowed them to resume share buybacks. JPMorgan has started a new $30-billion buyback program, while maintaining its dividend of $0.90 a share for a yield of 2.6%.

h2 2. Walmart/h2

Consumer value and discount retailers are also among stocks that could continue to benefit when consumers have more money to spend. In this group, Walmart (NYSE:WMT) is our top pick.

Shares of this big box retailer have underperformed this year after a powerful run since the pandemic-triggered crash last year. But this weakness, in our view, is a buying opportunity for long-term investors.

The Bentonville, Arkansas-based vendor has consistently shown, via its earnings reports, that it’s a favorite place for consumers to spend their stimulus cash. While Walmart expects a return to more normal business patterns in 2021, it’s venturing into new areas like advertising and web marketplaces to capitalize on its vast consumer base.

The retailer is in the middle of ramping up its digital media unit, recently renamed Walmart Connect. It will target ads on e-commerce platforms like Walmart.com and the Walmart app at shoppers purchasing in real time.

With its e-commerce momentum and strong core brick-and-mortar operations, we believe WMT is a long-term bet to earn both capital appreciation and steadily growing dividends, which currently yield 1.72%.

h2 3. Nike/h2

The world’s largest sportswear maker, Nike (NYSE:NKE) is another solid company that's well positioned to benefit from consumers with extra cash.

Widespread lockdowns, the cancellation of sporting events and a sharp economic downturn created a perfect storm for retailers like Nike during the past 12 months. But the company’s recent earnings report showed the retailer is coming back quite strongly, helped by its successful e-commerce strategy. The company’s digital revenue surged 84% in the quarter that ended Nov. 30.

Nike is one of those companies whose massive investments in technology is paying off during the pandemic and transforming its business to become leaner and more profitable.

Bricks-and-mortar retailers that were closed to foot traffic during the first round of stimulus measures last year could see more upside after this fresh stimulus as consumers look to buy new athletic footwear into the warmer months. In November, Nike raised its full-year outlook for revenue, now expecting growth on a percentage basis that is in the low teens. It also anticipates improved profit margins.

Written By: Investing.com