Cities in the U.S. and around the world are beginning to reopen after lockdowns due to the COVID-19 pandemic. For investors, it could be an opportune time to start buying up stocks of companies whose products or services could see an increase in demand as that happens. Below are three stocks that look to be good buys before the economy gets back to operating at full capacity:
1. Quest Diagnostics
Quest Diagnostics (DGX 5.08%) could play a pivotal role in keeping people safe as they head back to work and start resuming their regular day-to-day lives. On May 27, the U.S. Food and Drug Administration (FDA) gave Quest emergency use authorization for its coronavirus test, which will make it possible for people to collect samples at home.
Using the self-collection kit, people can send their samples to labs to be tested for the coronavirus. Increasing the frequency of testing is going to be paramount to ensuring that people are safe and free of COVID-19. Allowing the collection of samples at home is a big step toward minimizing the risk that people who have the virus could infect others, because travel to a medical clinic or a hospital is not required. By the end of June, Quest expects to have over 500,000 kits available.
Image source: Getty Images.
The healthcare stock is trading at 20 times its earnings, and now could be a good time to buy, before testing numbers send its sales through the roof.
Quest released its first-quarter results April 22. Its revenue was down 3.7% from the prior-year period, and its diluted per-share earnings crashed 32% as COVID-19 hit the company hard. Testing volumes were down as treating the coronavirus took precedence at hospitals. But as things get back to normal, the demand for regular testing and diagnostics on diseases other than COVID-19 will be back up as well.
Although it was a disappointing quarter, investors remain optimistic about the company. Its share price is up 11% since the start of the year -- well above the 3% decline the S&P 500 has seen during that time. And there's definitely a lot of reason to be bullish moving forward.
2. Dollar Tree
Dollar Tree (DLTR 0.71%) is an enticing buy for an entirely different reason than Quest. The retail stock may not be a solution for COVID-19 testing, but it can be a solution for people who have lost their jobs, are on shoestring budgets, and need to cut costs however they can. Stimulus payments can only go so far, and one way to stretch money as much as possible is by shopping at a dollar store.
Evidence of this is already starting to pour in for Dollar Tree. The company released its first-quarter results May 28, and it showed a strong start to the new fiscal year. Net sales were up 8.2% from the prior-year period. That's a big improvement from the 3.4% sales growth the retailer generated in fiscal 2019. And there's still room for better results, as Q1 wasn't a slam dunk for the company despite the strong numbers.
The Virginia-based company saw strong growth from its Family Dollar stores, where same-store sales were up 15.5%. But the Dollar Tree brand of stores saw same-store sales numbers decline by 0.9%, mainly due to lower Easter sales. If both stores can benefit from a surge in activity, Dollar Tree could be in for a great year ahead.
Investors were bullish on the results; shares of Dollar Tree jumped on the performance, leaving the stock currently down just about 1% year to date. At one point during the March market crash, shares of Dollar Tree were down more than 25%. The stock's currently trading at 27 times earnings, in line with peers such as Walmart.
3. Alphabet
Shares of ever-popular tech stock Alphabet (GOOG 1.25%) (GOOGL 1.27%) are performing well in 2020, up more than 5% year to date. While people are still using the company's properties, including Google and YouTube, advertisers have scaled back as a result of COVID-19. With businesses shut down and consumers not going anywhere, advertisers know there's little point to spending during a pandemic. But as businesses open up, that'll change. And many companies may be looking to make up for the lost time, which could lead to more money spent on advertising.
When the California-based company released its quarterly results on April 28, Google's year-over-year revenue growth was just 13%, compared with 17% a year earlier. The company noted that in March it "experienced a significant slowdown in ad revenues." But with profits continuing to rise despite the slower growth rate, investors weren't too disappointed with the results, as shares of Alphabet rose after the earnings release.
Currently, the stock's trading at about 28 times its earnings, which is a bit more expensive than in the past. But as the economy starts to ramp back up, shares of Alphabet could see even stronger numbers in the quarters ahead, making now a good time to consider adding the stock to your portfolio.
Which stock should you buy today?
All three stocks listed above have done well either this year or in recent weeks, so you won't be getting them at a big discount. But the one that may present the best value today is Quest. It's a cheaper stock than both Alphabet and Dollar Tree with respect to earnings:
DGX PE Ratio data by YCharts
The healthcare stock's bottom line could get a big boost this year as it starts making its COVID-19 self-test kits available to the masses. That could send its share price even higher if investors are willing to pay the same price-to-earnings multiple for Quest that they are today. As an added bonus, the New Jersey-based company's also the only one on this list that pays a dividend. Currently, you can earn a dividend yield of about 1.9% from holding shares of Quest, which is close to the 2% payout that you can normally expect from the average stock on the S&P 500.
