It's been a wild ride for investors over the past five weeks, and the stock market has shown little sign of calming down. It took just 16 sessions to descend from recent highs to an official bear market (down 20%), which marked the steepest descent into bear market territory in history.
What's more, due to the uncertainty associated with the coronavirus and the serious mitigation measures being implemented to lessen its spread, there's no telling what the ultimate toll will be on the economy and the stock market, at least in the near term.
But, believe it or not, there is good news.
A one-time payday might be headed your way
For one, we've witnessed 37 previous corrections in the benchmark S&P 500 since the beginning of 1950, and each one of these moves lower was eventually erased in its entirety by a bull-market rally. Officially, the stock market offers no guarantees. However, erasing all 37 previous corrections and eventually pushing to new heights is a pretty good indicator that this'll be the fate of the current bear market correction, too.
Another bit of good news, at least of Monday, March 23, is that Congress is working toward a mammoth fiscal stimulus package that, in combination with the Federal Reserve's monetary actions, may help support the temporarily ailing U.S. economy.
While the details are far from finalized -- at least at the time of this writing -- the plan is to give every taxpaying American or couple filing jointly a one-time payment of $1,200 or $2,400, respectively. Individuals and couples reporting more than $75,000 and $150,000 in respective income on their 2018 tax returns would begin to see a phase-out in their stimulus checks, with those folks earning over $99,000 in 2018 ($198,000 for couples) receiving nothing.
Although some people absolutely need this payout to cover day-to-day expenses, pay bills, or add to their emergency funds, it might be in the best interest of those who already have adequate emergency funds to invest their $1,200 stimulus checks.
Assuming Congress is able to put money directly into the hands of taxpayers in the weeks to come, here are three top stocks you should consider buying.
Following a more than 30% pullback from its all-time high set in mid-February, now looks like the perfect time for stimulus check recipients to consider buying shares of tech kingpin Apple (AAPL -0.41%).
Apple was among the first major companies to come out and announce that COVID-19 was going to adversely affect its ability to meet its previously issued guidance. But unlike many companies that are biting their proverbial nails and potentially accessing lines of credit, Apple is a cash cow and simply doesn't have those concerns. Next to its $116.8 billion in total debt is $107.2 billion in cash and marketable securities and $73.2 billion in operating cash flow over just the past 12 months. Apple has such a cult-like following for its devices that a shutdown for a few weeks is hardly going to be noticeable beyond 2020.
This is also a company that hasn't relinquished its crown as a key innovator. Aside from being a dominant player in the smartphone market, Apple is delivering even more pronounced growth in wearables and services (the latter of which could really improve Apple's already juicy margins).
Investors also won't want to overlook the importance of the rollout of 5G networks. With Apple set to unveil its first 5G-capable phone later this year, and telecom providers liable to continue upgrading their wireless infrastructure for years, we could see a long upgrade cycle pay big dividends for Apple.
Bank of America
A lot that could go wrong for money-center banks has gone wrong of late. Coronavirus is pushing the U.S. economy toward a recession, which is bad news for the highly cyclical banking industry. Further, the Federal Reserve has moved its federal funds rate back to an all-time low, which means less in the way of interest income for banks. Tack on loan uncertainty amid an expected temporary rise in unemployment figures, and you have what looks like a disaster recipe for banks.
But after a roughly 45% tumble in Bank of America's (BAC -0.38%) stock since Feb. 19, the time looks right for stimulus check recipients to consider buying into one of America's most-recognized financial institutions.
While Bank of America is likely to see lower noninterest income as lending rates have fallen, it should be able to offset this weakness by simply doing what it's been doing for years. Namely, reducing noninterest expenses, leaning on noninterest income (e.g., account fees and asset management fees), and promoting digital banking and mobile apps. Digital sales now account for 29% of all consumer banking sales, which is important given how much less it costs BofA when its customers transact online or on their phones as opposed to in person.
Savvy investors can now buy into Bank of America for less than 6 times next year's consensus profit forecast and only 66% of its book value. You have to go all the way back to 2012 to find the last time BofA was such a book-value bargain.
If you expect to receive a stimulus check and you already have a healthy emergency fund, you might also want to consider buying shares of global pharmaceutical company GlaxoSmithKline (GSK 0.19%), which is near an 11-year low.
Though healthcare stocks have gotten caught up in the coronavirus whirlwind that's sacked practically every industry and sector, their downside move makes virtually no sense. People don't have the ability to control when they get sick or what ailment(s) they develop, which is what makes the healthcare sector, and specifically drug developers, an exceptionally safe bet in any market environment.
What makes GlaxoSmithKline so intriguing is that it offers three operating segments, each of which brings something unique to the table. Consumer healthcare, for instance, is relatively slow-growing, but it offers an assortment of products that generate predictable cash flow in any environment. Then there are vaccines, which deliver additional predictable cash flow, but that has been buoyed substantially by innovation (e.g., blockbuster Shingles vaccine Shingrix). Lastly, there's pharmaceuticals, which offers the most robust margins but also a finite period of exclusivity. Though generics have whittled away at GSK's established pharmaceutical products, its line of HIV and respiratory therapies offer long-term growth potential.
Investors looking to put their $1,200 stimulus check to work can now buy GlaxoSmithKline at roughly 10 times next year's per-share profit potential and net a mouthwatering 7.5% dividend yield in the process.