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3 Back-to-School Stocks to Buy Right Now

By David Jagielski – Sep 27, 2020 at 7:29AM

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These companies can help keep students and teachers safe this school year.

School's back in session, and with the coronavirus pandemic still around, it's going to be a challenging year for teachers and students. For investors, however, it's an opportunity to invest strategically in companies that are likely to see demand for their products and services rise as they help make classrooms safer. 

From more testing to safety supplies and products to facilitate at-home learning, Quest Diagnostics (DGX 0.09%)Plantronics (POLY), and Home Depot (HD -0.77%) are three examples of stocks that could get a boost this school year. Here's why all three companies could be great investments right now.

1. Quest Diagnostics

One of the ways that countries can contain the spread of COVID-19 is by conducting frequent testing. That's why Quest Diagnostics is likely going to remain busy for a while, especially now that schools are open again. In just the last two weeks of July, with kids on the cusp of going back to school in the U.S., more than 97,000 of them contracted COVID-19.

Young student wearing a mask.

Image source: Getty Images.

Dozens of schools reported COVID-19 cases in Germany, and Israel's seen a sharp increase in its case numbers not long after reopening its classrooms in mid-May. As parents and teachers know all too well, kids are great at transmitting germs and illnesses, and that's why prevention and doing more more testing is a key part of the solution in containing the spread of COVID-19 this school season.

Quest is making it easier to do testing, now allowing people to purchase a COVID-19 test online. And you don't even need to visit a doctor's office at all. With its QuestDirect COVID-19 Active Infection test, users can collect the specimen for the test either at home or at a Walmart Neighborhood Market drive-thru pharmacy. This makes it easy for people to take the test while following social distancing guidelines.

It's looking like a good year for Quest, which upgraded its guidance on Sept. 10. The company now expects its revenue for 2020 to come in between $8.4 billion and $8.8 billion. Previously, it was forecasting a range between $8 billion and $8.6 billion. If it reaches the high end of its forecast, Quest will see sales increase by about 14% this year, up from the $7.7 billion in revenue it generated in 2019.

2. Plantronics

Not all schools are open for in-person instruction. In New York, the city is allowing students to begin the year remotely and will slowly phase them back into classrooms. It was a late change for the city, where officials previously believed that schools could safely reopen given the declining infection rate.

The reality is that many cities and school districts will need to adapt on the fly, especially if there's a spike in COVID-19 cases. While many students are starting school remotely, many more could soon join them. That's what makes Plantronics another intriguing back-to-school stock to buy. The company is known for its noise-cancelling headphones and currently offers a wide range of products that center around connectivity and working remotely. They can help a remote worker or student who is in need of some quiet at home or just needs to listen to a lecture online without distractions. 

The company's first-quarter results of fiscal 2021 for the period ending June 27, which it released on July 28, were a bit disappointing, with sales of $355.7 million down 20.5% year over year. However, Plantronics noted strong demand for its headsets, saying that there was a five-week backlog due to an increase in remote workers.

The company's expecting better numbers for the second quarter, forecasting net revenue to come in between $346 million and $386 million. And if there's a spike in COVID-19 case numbers, leading to more students and office workers staying at home, those numbers could get even stronger.

3. Home Depot

A popular place for educators these days is their local home improvement store. Home Depot is a great source for Plexiglas, dividers, and whatever other products schools need to help keep students safe. One hot item that's in demand right now is tents, as both schools and businesses are buying them to help keep students and customers outdoors. It's a convenient option for warmer climates to help prevent the spread of COVID-19, and Home Depot sells them.

The home improvement store is already benefiting from more people staying indoors and spending their time and money on repairs around the house. Schools could give Home Depot's top line yet another boost this year.

On Aug. 18, the Georgia-based business released its second-quarter results through Aug. 2, and net sales of $38.1 billion were up 23.4% year over year. Comparable-store sales in the U.S. rose by an impressive 25%. And all that growth trickled down into a stronger bottom line, which at $4.3 billion was up 24.5% from the prior-year period.

Home Depot could be one of the big winners of 2020, as it's seeing some strong growth numbers this year due to COVID-19. And between schools, businesses, and event planners looking for ways to rejig their operations to make them safer, Home Depot could see demand for its products continue to skyrocket.

Which stock is the best buy today?

The three stocks listed above can be great investment options to put in your portfolio as schools adapt to what's likely to be a volatile year. Here's a look at how all three stocks are doing in 2020 compared to the S&P 500:

^SPX Chart

^SPX data by YCharts

Only Home Depot's outperforming the index by a wide margin this year, while Plantronics still hasn't recovered from a disappointing quarterly performance early on in 2020. To add a bit more context to the equation, let's also look at their price-to-earnings (P/E) multiples:

DGX PE Ratio Chart

DGX PE Ratio data by YCharts

Plantronics is the only unprofitable company on this list, incurring losses in eight straight quarters. However, more revenue growth could cure those issues in future quarters. 

Overall, I'm inclined to give a slight edge to Home Depot. Even with its impressive performance this year, the stock still isn't a whole lot more expensive than Quest in terms of earnings. And with so many ways for the company to grow right now, it's an exciting investment to hold on to.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool has a disclosure policy.

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