11 Recovery Stocks That Could Get a Stimulus Spark
Some Americans have telegraphed plans to plug at least some stimulus money into the stock market. If you plan to do the same, consider starting with these 11 "recovery stocks."
The Biden administration's historic $1.9 trillion stimulus spending plan should go a long way toward helping America recover from the ravages of the COVID-19 pandemic. It should also create opportunities for investors to capture the upside in a number of "recovery stocks."
The market, as we are so often told, is forward-looking, so share prices in many cases should already reflect the river of recovery funds coming companies' way. But that doesn't mean every stock that stands to benefit from a recovery is tapped out.
As part of this COVID-19 rescue plan, millions of Americans will receive $1,400 stimulus checks. Multiple surveys show that a significant number of them plan on investing at least some of their stimulus checks in the stock market. Notably, a recent report from Deutsche Bank found that retail investors between 35 and 54 years old plan to spend 37% of their stimulus checks on stocks. And half of respondents between 25 and 34 years old plan to invest 50% of their checks in the stock market.
Companies that benefit from both an increase in revenue as we proceed toward a general reopening of the economy, as well as from an influx of retail investors' stimulus money, are kind of the ultimate recovery stocks.
To get a sense of the best recovery plays amid the flow of stimulus funds, we searched the Russell 1000 for analysts' favorite names in key, economically sensitive sectors. After digging through the fundamentals, analysts' recommendations and research, we settled on these 11 names as the best recovery stocks to buy now.
Data is as of March 11. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts' ratings provided by S&P Global Market Intelligence.
- Market value: $24.9 billion
- Dividend yield: N/A
- Analysts' opinion: 12 Strong Buy, 3 Buy, 14 Hold, 1 Sell, 0 Strong Sell
Expedia Group (EXPE, $171.08) is one of several recovery stocks that have shot out of the gate in 2021, but analysts still say EXPE has plenty more room to run.
Shares are up by about roughly 30% for the year-to-date – and a whopping 275% from their 52-week closing low of $45.65 on March 18, 2020.
As much as last year's selloff was clearly overdone, analysts say the market still is undervaluing the company's earnings prospects as we inch closer to a post-pandemic world.
Argus Research analyst John Staszak upgraded EXPE to Buy from Hold in late February, citing increased January bookings and the likelihood the travel site will post above-peer-average profit growth this year, recovering from sharp losses in 2020.
"We also look for an accelerated recovery in 2022, helped by the broad distribution of coronavirus vaccines," Staszak writes. "Our long-term rating remains Buy based on our expectations for continued post-pandemic growth in online purchases of airline tickets, hotel rooms and other travel services."
Analysts forecast EXPE to generate average annual earnings growth of 16.5% over the next three to five years – and that's after including an estimated loss of 59 cents a share on an adjusted basis in 2021. Revenue, meanwhile, is forecast to bounce back 43% this year, then another 40% in 2022.
Bank of America
- Market value: $321.7 billion
- Dividend yield: 1.9%
- Analysts' opinion: 11 Strong Buy, 6 Buy, 8 Hold, 1 Sell, 1 Strong Sell
Bank of America (BAC, $37.24), as well as other sprawling money-center banks, are among the best recovery stocks. That's because they act as a bet on both domestic and international growth trends, both of which will come bouncing back as we progress in the pandemic recovery.
But BofA is also a bet on the increasing digitization of banking for retail and enterprise customers, notes Piper Sandler's Jeffery Harte.
"While the low interest rate environment creates meaningful revenue headwinds in consumer banking, we believe BAC will be a leading beneficiary of the pandemic-driven acceleration toward digital banking and reiterate our Overweight rating," he says.
The analyst adds that "BAC remains relatively asset sensitive at a time when rising long-term interest rates suggest that the market finally sees some 'light at the end of the tunnel' for near zero interest rates."
Importantly, BofA has scale at a time when it matters more than ever before in the banking industry, Harte says.
Deutsche Bank's Matt O'Connor adds that BAC, which he rates at Buy, is one of his top picks among U.S. bank stocks.
Analysts' consensus recommendation on Bank of America comes to Buy, according to S&P Global Market Intelligence.
- Market value: $123.1 billion
- Dividend yield: 2.3%
- Analysts' opinion: 6 Strong Buy, 0 Buy, 5 Hold, 0 Sell, 0 Strong Sell
Anheuser-Busch InBev (BUD, $62.37) took a big hit from sales of beverages at bars, restaurants, sporting events and everywhere else consumers drink beer away from home.
And even if their customers imbibed a bit more than they usually would in the privacy of their own dwellings, the world's largest brewer – responsible for the Budweiser and Bud Light brands, as well as Beck's, Cass, and even Corona and Modelo (outside of the U.S.) – still is set to lap increasingly easy year-over-year comparisons as life returns to normal.
Make no mistake: BUD shares have been hit hard by the novel coronavirus. The stock is still below the levels it occupied before the pandemic selloff began in February 2020. Indeed, it lost 15% last year and is off almost 11% in 2021.
But an attractive valuation and improved top-line prospects have analysts turning incrementally more positive on the name.
"BUD shares have been hit hard by the coronavirus, and results are not expected to completely recover until 2022," writes Argus Research analyst Taylor Conrad, who rates the stock at Buy. "Over the long term, we expect Anheuser-Busch InBev to benefit from under-penetration in emerging markets, increased demand for premium beers, and expanding sales of 'near-beer' and nonalcoholic beverages."
Taking a closer look at the valuation, analysts expect BUD to deliver average annual earnings growth of 17% over the next three to five years, according to data from S&P Global Market Intelligence. And yet the stock trades at less than 18 times projected earnings for 2022.
Although concerns remain about foreign currency headwinds and softness in certain international markets, analysts' consensus recommendation stands at Buy.
- Market value: $219.8 billion
- Dividend yield: 3.3%
- Analysts' opinion: 10 Strong Buy, 7 Buy, 7 Hold, 0 Sell, 0 Strong Sell
The bad news: The pandemic put a big hurt on sales of Coca-Cola (KO, $50.88) products at restaurants, bars, cinemas, live sports and other events. The good news: KO will come up against easy comparisons as the world emerges from the COVID-19 era, essentially setting it up for a spring-loaded recovery in revenue.
Although some analysts caution that the overhang of ongoing tax litigation could weigh on investor sentiment regarding KO shares, certain macroeconomic and fundamental factors point to KO as one of the better recovery stocks for investors who love big, sturdy blue chips.
At CFRA Research, for example, Garrett Nelson rates Coca-Cola at Hold on tax litigation unknowns. But he says the "plummeting U.S. dollar should boost KO's operating income and on-premise sales should improve as restaurants and other venues gradually re-open."
Elsewhere on the Street, Bernstein Research's Callum Elliott in January initiated coverage of this bluest of blue chips, telling clients the company is undergoing an "underappreciated cultural overhaul" and "multiyear turnaround story" set to drive a prolonged period of sales, margin and earnings expansion.
Of the 24 analysts covering Coca-Cola tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, seven say Buy and seven call it a Hold. That gives the Dow Jones stock a consensus recommendation of Buy.
The Street also expects the beverages giant to generate average annual earnings growth of 5.1% over the next three to five years.
- Market value: $34.5 billion
- Dividend yield: N/A
- Analysts' opinion: 11 Strong Buy, 4 Buy, 4 Hold, 2 Sell, 0 Strong Sell
The market is already pricing in big things from Southwest Airlines (LUV, $58.47) as it flies toward sunnier skies ahead.
Shares in the air carrier are up 25% for the year-to-date, vs. a gain of less than 5% for the S&P 500. Heck, in the past six months LUV has gained 50% against an 18% rise in the broader market.
Fortunately, analysts think shares can keep climbing, even though a full recovery in air traffic to pre-pandemic levels likely remains years away.
Although the pandemic continued to depress air travel demand during the fourth quarter of 2020, Southwest Airlines displayed impressive resilience, says CFRA Research analyst Colin Scarola.
"Despite the quarter's major resurgence of COVID-19, which led to new travel restrictions and business closures, LUV's revenue grew 12% vs. the third quarter," writes Scarola in a client note. "Such strong sequential revenue growth in this harsh environment suggests that there is significant pent up air travel demand. We think this demand will start to be unleashed this Spring as vaccines become widely distributed, allowing LUV to soundly beat revenue and earnings per share estimates for 2021."
The analyst notes that even in the face of unprecedented demand weakness, Southwest maintained a strong balance sheet with negative net debt throughout the pandemic.
"Strong customer loyalty and efficient operations will lead LUV to be the first major airline to recover profitability," Scarola adds.
Although two analysts remain skeptical of LUV stock at current levels, slapping Sell calls on the name, the consensus view works out to a solid Buy, according to S&P Global Market Intelligence.
Archer Daniels Midland
- Market value: $32.7 billion
- Dividend yield: 2.5%
- Analysts' opinion: 7 Strong Buy, 3 Buy, 3 Hold, 1 Sell, 0 Strong Sell
Although increased demand for comfort foods, snacks, staples and other eat-at-home packaged foods have helped Archer Daniels Midland (ADM, $58.59) navigate the pandemic well, the global food ingredients giant has no shortage of catalysts coming amid a return to normalcy.
The shuttering of restaurants, bars, live sports and entertainment and other public venues hurt sales of starches, sweeteners and other products in its food services businesses. At the same time, shelter-in-place restrictions in Europe took a toll on its overseas biodiesel business, while a decline in gas demand in the U.S. forced a temporary shutdown in ethanol productions.
Those segments now have the opportunity to bounce back. Add in expectations for future growth in other divisions, and several analysts have ADM among their best recovery stocks.
Argus Research analyst Deborah Ciervo rates the stock at Buy "based on the company's strong performance and expectations for further growth in the Oilseeds business and improvement in the Origination and Nutrition divisions."
Those segments have benefited from global demand for soybean meal despite the drop in exports to China, says Ciervo, adding that she continues to have a "favorable view of the company's long-term strategy."
With seven Strong Buy recommendations, three Buy calls, three Holds and one Sell, analysts' consensus recommendation on ADM comes to Buy, according to S&P Global Market Intelligence.
- Market value: $358.3 billion
- Dividend yield: N/A
- Analysts' opinion: 15 Strong Buy, 6 Buy, 5 Hold, 1 Sell, 0 Strong Sell
The coronavirus took a huge bite out of some of Walt Disney (DIS, $196.75) most important divisions: specifically, its theme parks and studios. But after encouraging quarterly results, analysts say business is set to bounce back in a big way.
While it's certainly good news that Disneyland and other California amusement parks will be allowed to reopen with limited capacity and other restrictions on April 1, that's nothing compared to what DIS has on its hands in the streaming media wars.
Disney+ is a smashing success. The streaming platform, which launched in November 2019, has already amassed almost 100 million subscribers – a staggering rate of growth. Consider that Disney+ now has about half as many subscribers as Netflix (NFLX) – but Netflix had a roughly 12-year head start.
"While the near-term visibility remains somewhat limited by the COVID-19 surge, DIS is one of the likely prime beneficiaries of further reopening of the global economy, with improved near-term prospects of vaccine development," says CFRA Research's Tuna Amobi, who rates the stock at Buy.
In the meantime, CFRA likes that DIS is "systematically pivoting to a direct-to-consumer-centric strategy on COVID-19 demand tailwinds for its streaming offerings (Disney+, ESPN+, Hulu)."
The Street, on average, is solidly bullish on Disney, with a consensus recommendation of Buy.
Alaska Air Group
- Market value: $8.3 billion
- Dividend yield: N/A
- Analysts' opinion: 9 Strong Buy, 2 Buy, 3 Hold, 0 Sell, 0 Strong Sell
Alaska Air Group (ALK, $65.69) is another airline set to benefit disproportionately from a recovery in the sector, analysts say. Indeed, CRFA's Scarola says it has some of the same attributes supporting his Buy call on Southwest.
"We believe ALK's combination of a conservative balance sheet and its historically high cash generation per plane will make it among the first U.S. airlines to recover profitability this year," writes Scarola, who has a Buy recommendation on the stock. "ALK also has modest equipment purchase commitments for 2021-2022, in our view, with 2022 commitments equating to only 32% of 2019 operating cash flow."
At Stifel, analyst Joseph DeNardi (Buy) believes the airline's geographic service area lowers the risk that it emerges from the pandemic facing significantly lower structural demand. And even if the pandemic and its aftermath trigger a painful reckoning in the industry leading to consolidation?
"Alaska would be a highly valued asset," DeNardi writes.
Long-term investors traditionally don't bet on stocks because they believe them to be attractive acquisition targets, but there's nothing wrong with having an extra card to play.
Either way, the bulk of the Street cottons to the bullish investment thesis and considers ALK among the best recovery stocks out there, with nine Strong Buy calls and two Buy calls against three Hold recommendations. All in all, those views add up to a consensus rating of Buy, according to S&P Global Market Intelligence.
Gaming and Leisure Properties
- Market value: $9.7 billion
- Dividend yield: 6.2%
- Analysts' opinion: 10 Strong Buy, 3 Buy, 2 Hold, 0 Sell, 0 Strong Sell
Gaming and Leisure Properties (GLPI, $42.36) is an analyst favorite in the casino real estate investment trust (REIT) sector thanks to both a snazzy dividend yield and attractive growth prospects coming out of the pandemic.
The company, whose properties include the Hollywood Casino Baton Rouge and Argosy Riverside in Missouri, collected 100% of its rents in 2020, notes UBS Global Research analyst Robin Farley, who is one of just two analysts with a Hold-equivalent rating on GLPI.
More bullishly, Stifel's Simon Yarmak calls Gaming and Leisure Properties a Buy, thanks to "an attractive portfolio of regional assets, which has returned to strong operating performance."
Perhaps most optimistic of all is Raymond James analyst RJ Milligan, whose Strong Buy call is based partly on the stock "trading at an unwarranted discount."
"With zero exposure to the Las Vegas Strip, GLPI's assets have seen a stronger recovery than the other gaming REITs," says Milligan in a client note. "In addition to strong asset-level recovery, GLPI's largest tenant – Penn National Gaming (PENN) – has significantly improved its liquidity position and has cheap/attractive access to the capital markets (it can pay the rent until we get to the other side of COVID)."
With 100% rent collection in 2020, it's fair to say GLPI has proven itself durable, bulls say. They're excited to see what happens once a fuller economic reopening takes hold and customers return en masse.
Wyndham Hotels & Resorts
- Market value: $6.4 billion
- Dividend yield: 0.9%
- Analysts' opinion: 8 Strong Buy, 2 Buy, 1 Hold, 0 Sell, 0 Strong Sell
Not all hotels are the same. Wyndham Hotels & Resorts (WH, $68.88) – whose brands include La Quinta, Ramada, Super 8 and Travelodge – stands to enjoy a disproportionate lift from the return of mass-market business and leisure travel.
As a result of those characteristics, some Wall Street analysts like WH as a potential comeback play in the lodging industry.
Although revenue per available room (RevPAR), a key hotel industry metric, continued to decline in the most recent quarter, Stifel analyst Simon Yarmak notes that the hotel chain's "results are likely to be among the best in the peer set, as the company benefited from its higher leisure exposure (70%) and drive to destinations (87% are drive-to travelers)."
Yarmak, who rates shares at Buy, adds that the company's RevPAR continues to strengthen, and that its occupancy rate "speaks to the company's relative advantage in returning to prior levels quicker than some of its peers."
In another point for the bulls, the company's capital-light business model allows it to generate ample free cash flow, analysts note.
Of the 11 analysts covering the stock tracked by S&P Global Market Intelligence, eight rate it at Strong Buy, two say Buy and one has it at Hold. Taken together, that equates to a consensus recommendation of Strong Buy, and the second-best rating of these 11 recovery stocks.
- Market value: $15.3 billion
- Dividend yield: 4.6%
- Analysts' opinion: 14 Strong Buy, 4 Buy, 1 Hold, 0 Sell, 0 Strong Sell
Perhaps no Las Vegas property owner is better prepared for a return to normal in Sin City than VICI Properties (VICI, $28.56).
The casino REIT has been on an acquisition tear in the COVID-19 era, most recently scooping up the Venetian Resort Las Vegas from Las Vegas Sands (LVS) for $4 billion. The whopper of a deal has at least some analysts doing handstands.
"VICI continues to steamroll right through the pandemic with another transformational acquisition," says Raymond James analyst RJ Milligan, who rates the stock at Strong Buy.
Other recent deals include a $250 million acquisition of three regional casino properties in December and last summer's $1.8 billion purchase of the land and real estate assets associated with Harrah's New Orleans, Harrah's Laughlin and Harrah's Atlantic City.
Once the Venetian deal closes, VICI will own the largest single hotel complex in the U.S., the company says, with more than 7,000 rooms and the largest private sector convention and trade center in America.
Analysts' consensus recommendation comes to Strong Buy, according to S&P Global Market Intelligence. The generous dividend yield of 4.6% also makes VICI one of the best recovery stocks from an income perspective.