3 Stocks to Benefit From a Second Stimulus Package
Based on the stock moves riding the CARES Act in March, we have seen that some stocks are particularly susceptible to a sudden influx of cash. Although not yet a sure thing, the next round of stimulus checks should yield the same effect. These are the three top stimulus stocks to watch, with the third one already likely to rise.
Both President Trump and President-elect Biden have affirmed their support for a new round of stimulus checks. Unfortunately, the negotiations stalled out, to the chagrin of millions of Americans in dire need of relief from job-destroying lockdowns. By Friday, the bipartisan deal should be finalized, with $600 direct payments per person still on the table.
Stocks to Benefit from a Second Stimulus Bill
In anticipation of the emergency relief bill, prepare to take advantage of investment opportunities most likely to benefit from more stimulus checks on the way. They may be twice as lower than from the CARES Act, but we are still talking about hundreds of billions injected into the economy.
1. Shopify (NYSE:SHOP)
The government’s response to the pandemic resulted in the systemic eradication of brick-and-mortar stores and small businesses. Outside of aiding Bitcoin, this also benefited e-commerce platforms. Quick-thinking entrepreneurs transitioned to digital storefronts for their services, with Shopify becoming their go-to e-commerce solution.
Consequently, Shopify gained over 150% in value this year, to the point of even worrying Amazon’s Jeff Bezos. Covering over a million stores and launching a fulfillment service last year, Shopify SFN, which is analog to Amazon’s FBA, Shopify is all about streamlining the online shopping experience. Like Amazon, it employs machine learning, low-cost delivery, smart inventory-allocation, and an easy plugin process for any merchant.
This not only gives Shopify the toolset to go against Amazon but it also provides a lifeline to small businesses from going extinct. Despite the vaccine distribution, the pandemic has firmly shifted shopping habits into the online sphere, benefiting Shopify. As a result, in Q3 2020, Shopify’s merchant revenue rose by an incredible 132%.
Likewise, its merchant subscription revenue rose by 48%. Even if Amazon builds a competing service, it is unlikely Shopify will lose much of that subscription base. After all, if there is one thing tech companies know, it is that familiarity brings entrenchment.
2. Dollar General (NYSE:DG)
The most obvious stock choice in the world following stimulus checks. As its name implies, the company is dedicated to serving customers seeking the cheapest deals across its 16,979 stores. With hundreds of billions of stimulus checks infused into the economy, DG will certainly receive a big chunk of that money.
Moreover, even affluent shoppers tend to use discount deals during a recession. We have seen this trend manifest in Q1 and Q2 2020, with DG’s sales rising between 19 and 22%. Although much of that was a result of the initial stocking-up panic, beyond Q2, DG saw increased sales in non-essential goods such as toys and seasonal products.
DG holds an important advantage over retail giants like Walmart (NYSE:WMT) by serving rural municipalities. Of its nearly 17k stores, two-thirds are located in towns under 20,000, which are mostly avoided by big-box chains. For the past few years, DG invested heavily in self-distribution and grocery supply. This positioned DG with an above-average sales rise of 17.3% YoY in Q3 2020.
Moreover, in the next year, DG is set to open over 1000 new stores. At the same time, DG is continuing to push to expand produce spaces, DG Fresh, to additional 600 stores. This is on top of already 14,000 stores gaining DG Fresh service. Given the growing trend of food bank lines, DG is all set to service customers as they receive the next round of stimulus checks.
3. Lockheed Martin Corp (NYSE:LMT)
It is no secret that President-elect Biden has a war hawk record. During his vice-presidency under Obama, Biden oversaw arms-deals and incursions into Libya, Yemen, and Afghanistan, on top of voting for the Iraq war. More tellingly, one-third of his Pentagon transition team are weapons-industry lobbyists, among them Lockheed Martin.
With pro-war staffers hailing from arms companies, LMT is poised to benefit. LMT is one of the largest aerospace/weapons companies, with almost half of its revenue coming from DoD contracts. Beyond defense, its government contracts also extend to NASA and the energy department.
Over the last three years, LMT’s revenue rose by 28.59%, with its operating income increasing by 11.3% during the last year. More importantly, its EPS (earnings per share) jumped by 243.8% for the last three years, with an RoE (return on equity) at 269.7% last year. The NDAA already passed before the relief package, with big arms sales on the way.
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Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.