A new $900 billion stimulus bill has been announced which will send up to $600 to individuals and $1,200 for married couples. For many people who’ve been tightening their belts and curtailing their spending due to the economic trauma created by the COVID-19 pandemic, the checks will encourage long-delayed purchasing.
Other people will use these funds to buy big-ticket items or to pay down debts accumulated over the past several months.
Certain industries will benefit, either immediately or in the near future, as a result of these checks. Within four key industries, leading companies that came through the pandemic on a strong note – the retail giant Target (TGT), the online real estate marketplace Zillow Group (ZG), the automobile industry titan Ford Motor Co. (F) and the consumer credit reporting agency TransUnion (TRU) – could see their respective stock values increase once the stimulus funds are received and put into use.
Shares for the big box retailer TGT gained more than 30% this year and moved upwards by nearly 4% over the holiday shopping season. TGT far outpaced its major rivals during the pandemic, recording a 320% comp growth compared to Walmart’s (WMT) 156% growth and Costco Wholesale’s (COST) 86%.
In its Q3 earnings released last month, TGT reported total revenue of $22.63 billion, up by $18.67 billion from one year earlier, while Q3 net income increased to $1.01 billion, or $2.01 per share, from $714 million, or $1.39 per share, in Q3 2019. Target’s $2.79 per share was much higher than the $1.60 per share forecast by analysts.
TGT ranks #2 among 18 stocks in the Big Box/Grocery Retailers, with only WMT ahead of it. But while WMT is the larger company – its Q3 revenue was $134.7 billion – TGT stock is trading higher than WMT, $173.35 versus $144.20. Also, TGT manages to avoid getting itself the bad press that WMT somehow manages to attract – just in the last few days, the U.S. Department of Justice sued WMT for its alleged role in enabling the opioid crisis while Amazon (AMZN) called out the retailer in a Bloomberg article for not paying its workforce a $15 per hour minimum wage.
More than a few dollars in stimulus checks will be spent in the coming weeks at TGT. In view of the stock’s solid position, our proprietary POWR Rating of “A” (Strong Buy) should be heeded.
Zillow Group (ZG)
One sector of the economy that was not bruised during the pandemic was the housing market. According to National Association of Realtors data released this week, existing-home sales in November were at a seasonally-adjusted annual rate of 6.69 million, up 25.8% from one year ago. One-third of November’s sales came from first-time buyers taking advantage of historically low mortgage rates. Lawrence Yun, NAR's chief economist, was happily surprised by the data, stating, “Given the COVID-19 pandemic, it's amazing that the housing sector is outperforming expectations.”
At the start of December, ZG’s stock recorded a year-to-date gain of 132.9%. ZG’s Q3 total revenues of $656.7 million marked a 12% year-over-year decline, which could be attributed to declining inventory levels, a problem that bedeviled the housing market before the pandemic.
ZG ranks #8 of 61 stocks in the Internet category – no mean feat, considering ZG’s niche focus on housing gives it a higher berth above online giants AMZN, Facebook (FB) and Netflix (NFLX). And the company earns straight A’s in all four grades (Trade, Buy & Hold, Peer and Industry Rank) plus an “A” POWR Rating.
ZG will be in an excellent position as 2021 unfolds. All evidence points to the continuation of home sales rising – many of those stimulus checks will be going into down payment savings – and ZG has already taken full advantage of the digitization of the real estate market through its sector-leading online brokerage. ZG could also see a new windfall in the coming months as homeowner forbearance plans enacted under the CARES Act begin to expire – many homeowners would sooner sell their properties than risk mortgage delinquencies or foreclosures, and the Zillow Offers service for buying and selling properties could easily benefit from this potential activity.
Ford Motor Co. (F)
This has been a crummy year for automobile sales. According to recent data published by online automotive resource Edmunds, 14.4 million new cars and trucks are forecast to be sold in 2020, a 15.5% decline from 2019 and the lowest level in eight years.
Some of the residue from the pandemic continues to impact on Ford – the much-awaited new Bronco is being delayed until the summer due to a COVID-related supplier problem. However, the company is eager to make up for lost time and lost sales – its 2021 F-150s began shipping to dealers in late November and the company’s foray into the electric vehicle space, the Ford Mustang Mach-E, became the center of media attention this week with a clever television advertising featuring Chevy Chase recreating his classic Christmas lights scene from “National Lampoon’s Christmas Vacation.” The company plans to invest more than $11.5 billion in electric vehicles through 2022, which could give a certain Mr. Musk a run for his considerable money.
Despite the pressures created by the pandemic, F stock has increased by roughly 42% in the last six months. For its Q3 earnings, F reported $2.4 billion in profits, or $.060 cents a share, compared with $400 million, or $0.11 cents a share from one year earlier. Revenue was also up in Q3 to $37.5 billion from $37 billion the previous year.
Mark LaNeve, Ford vice president, U.S. Marketing, Sales and Service, stated during the Q3 earnings call that “retail unit sales were down only 2 percent and we had our best third quarter of pickup truck sales since 2005. F-Series finished the quarter on a high note with September sales up 17.2 percent with over 76,000 F-Series pickups sold.”
F is ranked #5 of 34 in the Auto & Vehicle Manufacturers category and is, as of this writing, the only stock in the top five berths trading in the single digits – in comparison, #1 Tesla (TSLA) is trading at $640.34 while F trades at $8.79. Still, F earns an “A” POWR Rating.
As Americans become increasingly antsy over being forced to quarantine at home and now have a new stack of dollars via the stimulus funds, the appeal of taking to the road in a new automobile – whether the traditional gas-tank model or an electric vehicle – will be too hard for many to resist. F is in an excellent position to take advantage of this pent-up consumer energy and new funds to spend.
The economic tumult created by the pandemic saw a new wave of deferral and forbearance programs to help borrowers who suddenly with reduced or evaporated income. At the same time, demand for credit was down – according to a New York Federal Reserve Bank survey from earlier this week, the share of households applying for any form of credit between February and October dropped by 11 percentage points to 35% while the application rate for new credit cards slid by 10 points to just slightly less than 16%, the lowest level since the Fed started tracking this data in 2013.
In 2021, however, the situation promises to be different.
“The reopening of America and the expected addition of more jobs and increased wages will make the greatest impact in how consumers are able to manage their debts in 2021,” said Matt Komos, vice president of research and consulting at TransUnion (TRU). “We are forecasting robust origination activity, and barring any unforeseen shocks to the economy, we anticipate this growth will commence at the beginning of the second quarter of 2021 for most credit products. Our forecast also sees a greater percentage of new loans going to lower risk consumers, which we believe will benefit the overall serious delinquency picture.”
The company has been rather busy during the pandemic – TRU stock has been up by more than 10% over the last 12 months and TRU ranks #8 of 47 stocks in the Consumer Financial Services category, with an “A” POWR Rating.
During Q3, TRU posted revenues of $695.9 million, up from the $689.3 million from one year earlier. TRU Christopher A. Cartwright used the Q3 earnings call to proclaim his company “a record adjusted revenue and adjusted EBITDA in absolute dollars and the highest quarterly adjusted EBITDA margin in our history.”
Cartwright also pointed out TRU’s Q3 included the addition of “alternative data including trended credit, payday, and online short-term loans, retail loans, certain demand deposit Information, utility, and other data. This extended data coverage enables us to provide credit behavior insights on millions of consumers that we could not previous. We've also diversified our business portfolio overall with important extensions into insurance, healthcare, public sector, consumer identity, digital services, and other verticals and categories.”
For those using their stimulus funds to pay down debts, their efforts will show up on their TU credit scores. And as one of the three major U.S. consumer credit reporting agencies, TRU’s data services will be very much in demand by lenders, landlords, employers and others seeking credit histories on potential borrowers, tenants or workers. It will be a bustling – and, most likely, profitable – 2021 for TRU.
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TGT shares were trading at $175.90 per share on Wednesday afternoon, up $3.55 (+2.06%). Year-to-date, TGT has gained 39.97%, versus a 16.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Phil Hall
Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output.4 Stocks That Will Benefit from the New Stimulus Checks appeared first on StockNews.com