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3 High-Quality Stocks to Buy With Your Stimulus Check

By Jeremy Bowman - Mar 23, 2020 at 7:02AM

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You may want to consider a few beaten-down, best-in-class consumer companies.

There is no question this is a tough time for a lot of Americans. A number have suddenly lost their jobs. Many are in lockdown-style conditions to prevent the spread of the COVID-19 coronavirus, and some are even sick with the disease.

But there is some good news, at least on the financial front. To cope with economic hardship during the coronavirus crisis, the federal government is looking at potentially sending some money to Americans. One proposal would send most American adults checks for $1,200, with an additional $500 for each child. The direct payments would phase out for individuals making more than $75,000, while individuals earning more than $99,000 or families earning more than $198,000 would not be eligible. Additional checks may also go out if the crisis persists into April and May.

If you're wondering if you should buy stocks with your newfound windfall, you should first make sure your emergency fund is fully stocked, especially as we head into a likely recession. Before buying new stocks, it's also a good idea to pay down any high-interest debt like credit cards.

But if you're relatively debt free, and have enough cash in the bank to fund several months' living expenses, you may want to put your check to work in the stock market. Below are three high-quality stocks trading at bargain prices today.

The Magic Kingdom at Disney World

Image source: Disney.

1. Walt Disney

There's no doubt that Walt Disney (DIS 3.69%) is a timeless company. Nearly 100 years old, its core brand has long been the standard-bearer for children's entertainment in the U.S. and around the world. 

Now, Disney is one of the corporate victims of the pandemic, forced to close all six of its theme parks and temporarily suspend its cruises as travel stocks have been hammered by the crisis. Because of that impact, which is compounded by the cancellation of all major sports for Disney-owned ESPN, the stock is down about a third since Feb. 21. 

The stock has approached five-year lows on the sell-off, falling as far as $85.11, a decline of 45% from its 52-week-high. But Disney's business isn't totally broken right now. Its media networks division is its most profitable segment and owns ABC, The Disney Channel, FX, National Geographic, as well as ESPN. It's in a strong position as Americans are forced to spend more time at home. In addition, Disney+ is set to launch next week in Europe where the streaming service is likely to receive a warm welcome since much of Europe is under lockdown-style conditions as well, and reports have it that Netflix viewing has been so high that it has strained the internet there.

Disney will face a challenging few months, but crowds will fill Disney World again one day, and the company is much more formidable than it was the last time it traded this low, having since opened Shanghai Disneyland, acquired Fox, launched Disney+, and gained majority control of Hulu. Over the long term, the stock will bounce back, and could move even higher thanks to Disney+, which has been a juggernaut.

Several Nike cleats

Image source: Nike.

2. Nike

Like other apparel brands, Nike (NKE 4.55%) has been forced to close stores, and many of its retail partners have done the same. Sales will suffer as the coronavirus spreads around the world, but the company has also invested in its online channel and in apps like SNKRS and Nike, which should cushion some of the blow from the pandemic. The lack of sports also decreases the brand's visibility, but Nike is another industry leader that should bounce back when the world returns to normal.

Like Disney, Nike shares have fallen by about a third since the virus-related sell-off began, but its competitors, like Under Armour and Adidas, are facing the same challenges as well, and have actually underperformed Nike in recent weeks. Under Armour was already struggling before the COVID-19 outbreak as it forecast a sales decline for 2020. Nike was also the first of the three to say it would close stores in response to the crisis. Under Armour soon followed, but Adidas resisted, and its CEO at one point said staying open was courageous, while closing was easy, alienating some employees. Though its stores are now closed, Adidas' corporate office remains open and leadership staff is expected to be there, which also may signal an insensitivity to the health and safety of employees that could backfire.

Finally, Nike's balance sheet is solid with $3 billion in cash and $3.4 billion in debt. As a market leader focused on technology and digital initiatives under new CEO John Donahoe, Nike should emerge from the crisis with a bigger advantage against its rivals.

A Starbucks employee in a cafe

Image source: Starbucks.

3. Starbucks

This is certainly going to be tough time for restaurants as eat-in orders are now banned across much of the country, leaving chains with just takeout and delivery. The good news for Starbucks (SBUX 3.87%) here is that most of its orders are normally for takeout, though the company will doubtless be affected by people shut in at home. It's a global company with stores across the Americas, Europe, and Asia, meaning it will likely be able to sell coffee during the pandemic. Its stores in China, which took a hit when the pandemic first started, have mostly reopened.

Starbucks' commitment to employee benefits is also shining during this crisis. Unlike many restaurant chains, Starbucks offers sick pay and paid time off, and it has added mental health benefits and catastrophe pay for any employee who is diagnosed with COVID-19. The company has long taken a stakeholder-value approach to its business, aiming to reward employees, customers, and shareholders equally, and that approach plays well in a crisis. 

The company also recently authorized a share repurchase of up to 40 million shares, touting its financial strength (it has $3.1 billion in cash against $10.7 billion debt) and indicating its confidence that it can make it through these times.

Starbucks' biggest advantage during this crisis will be that it can endure it much better than independent coffee shops or even rivals like Dunkin' Brands and Luckin Coffee. Starbucks can tap its digital program and delivery, which independent coffee shops will struggle to do. Some of those cafes may be forced to close if the crisis persists, since they may not be able to meet their payrolls. Dunkin franchises nearly all of its locations, meaning most employees don't receive sick pay, so they may be less likely to return to work if they're laid off. Luckin, its top Chinese competitor, is already operating at a steep loss, and the closures in China may pressure its expansion plans.

All three of these companies are industry leaders, financially solid, and will be in a position to grab market share once things return to normal. After falling by about a third in just the last month, all three of these stocks would gain 50% just by regaining those recent losses.



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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$97.78 (3.69%) $3.48
Starbucks Corporation Stock Quote
Starbucks Corporation
$78.11 (3.87%) $2.91
NIKE, Inc. Stock Quote
NIKE, Inc.
$112.91 (4.55%) $4.91
adidas AG Stock Quote
adidas AG
$90.62 (2.35%) $2.08
Under Armour, Inc. Stock Quote
Under Armour, Inc.
$8.39 (2.19%) $0.18
Luckin Coffee Inc. Stock Quote
Luckin Coffee Inc.
$11.89 (2.94%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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