One way to tell that the economy is doing better is that interest rate increases look to be imminent. In March, the expectation was that interest rates wouldn't rise until 2024. But now, half of the policymakers at the Federal Reserve believe interest rate hikes will happen as early as next year.
While interest rate increases won't be great news for many businesses, it's still a positive sign overall as it means the economy is in strong shape. And three stocks that you should consider buying on that development include AmerisourceBergen ( ABC 1.25% ), JPMorgan Chase ( JPM 2.58% ), and Delta Air Lines ( DAL 7.46% ).
Medical distribution company AmerisourceBergen will certainly benefit from a return to normalcy in the world. As more patients visit the doctor's office, that will inevitably lead to more prescriptions, which will help fuel the company's top line. Plus, it has even more exposure to that sector now that it has acquired pharmaceutical company Alliance Healthcare from Walgreens Boots Alliance for $6.5 billion (the deal officially closed in June).
Alliance Healthcare is one of the largest pharmaceutical wholesalers in Europe, helping AmerisourceBergen extend its vast reach across the globe. In fiscal 2020, Alliance's businesses generated $19 billion in revenue.
The company projects that for fiscal 2021, its adjusted diluted earnings per share will grow by 16% to 18%, up to $9.30. In its most recent quarter, for the period ending June 30, AmerisourceBergen reported $53.4 billion in revenue, a year-over-year increase of 17.7%. Although it got a boost from the inclusion of Alliance Healthcare within its results, its pharmaceutical distribution business (which makes up more than 90% of its revenue) grew at a solid rate of 13.2%. Over the past year, shares of AmerisourceBergen have risen 30%, outperforming the S&P 500, which has increased 20% during that time frame.
AmerisourceBergen is in terrific shape, and with the healthcare stock trading at just 14 times its earnings, it's a relatively cheap investment to own (the average stock in the Health Care Select SPDR Fund trades at a multiple of 27).
2. JPMorgan Chase
Financial institutions like JPMorgan Chase are among the few businesses that will benefit from rising interest rates since that will allow them to pocket more of a spread between what they pay to depositors and what they charge for loans.
JPMorgan Chase reported earnings this month, for the period ending Sept. 30, sales of $30.4 billion beat analyst estimates of $29.8 billion. And its beat on the bottom line was even better: EPS of $3.74 versus Wall Street projections of just $3. A big reason for the strong performance was a release of credit reserves (which indicates the bank is less worried about the risk of default, due to a stronger economy), which had a $0.52 positive effect on EPS.
A great way to bet on the success of the economy is to buy shares of a top bank like JPMorgan Chase. It also makes for an excellent dividend stock to hold. The company raised its dividend payment in September, hiking payouts from $0.90 every quarter up to $1, for an annual yield of 2.4% -- ahead of both the 1.5% that AmerisourceBergen pays and the S&P 500 average of less than 1.3%. And if the economy continues to grow, it's likely JPMorgan builds on these results and investors see their dividends climb even higher.
3. Delta Air Lines
Another company that's bound to do well in a return to normalcy is Delta Air Lines. The airline is coming off an improved quarter as more people have been traveling during the past three months. The company's adjusted EPS of $0.30 (also for the period that extended until the end of September) was nearly double the $0.17 analysts were expecting. And revenue of $9.2 billion also cleared Wall Street projections of $8.4 billion. Although the company is still not at pre-pandemic levels, Delta is flying at 80% capacity. That number is likely to rise as concerns around the pandemic subside.
The company did express concern that rising fuel prices will likely hurt next quarter's results and that it will incur a "modest loss." The price of oil recently hit highs not seen since 2014. But one of the reasons I wouldn't be too concerned about this is that the higher oil prices go, the more of an incentive there will be for the Organization of the Petroleum Exporting Countries (OPEC) to increase production (restricting it is one way they have been able to support oil prices to keep them from falling). For years, countries have been wanting to produce more oil but have had to restrict output because of an excess of supply.
But even amid higher oil prices, the International Air Transport Association projects that airlines will perform much better in 2022. It expects net losses for airlines to narrow from $51.8 billion this year to just $11.6 billion next year. And in North America, the trade body expects airlines to perform the best and return to profitability as travel demand improves.
Delta is already benefiting from these trends, and buying the stock before full recovery takes place could be a way for investors to secure a good return. Although its shares have risen just 28% in the past 12 months, compared to 35% returns for United Airlines and 57% gains for American Airlines, it could prove to be an underrated buy. A customer satisfaction study done by J.D. Power earlier this year had Delta ranking first in customer satisfaction among North American carriers (the first time it has done so since 1995) during the pandemic. Winning over customers during these high-stress times could pay off for the airline, especially as demand continues to pick up.