<p>Over the weekend, The New York Times ran a very interesting article that leveraged credit and debit card data from Earnest Research to analyze how the novel coronavirus pandemic has impacted consumer spending. Spoiler alert: there have been some big changes for consumer stocks.
Naturally, as an investor and financial markets analyst, I looked at The New York Times data and conjured up a list of hot consumer stocks benefiting from the stay-at-home economy.
That list is fairly robust.
Perhaps obviously, it includes grocery stocks, supermarket stocks, video game stocks, and music and video streaming stocks. Consumers have bulk-bought groceries and consumer staples, and they have doubled-down on at-home entertainment options amid the pandemic.
But it also includes some less obvious consumer stocks, like home improvement stocks and office supplies stocks. According to the NYT data, consumers have actually spent more at home improvement and office supplies stores in the last week of March.
Broadly, the list includes hot consumer stocks that will stay hot so long as consumers remain locked indoors, which is likely for the next few weeks.
With that in mind, some hot consumer stocks winning because of how the coronavirus pandemic has impacted consumer spending includes:
Sprouts Farmers Market (NASDAQ:SFM)
Constellation Brands (NYSE:STZ)
Electronic Arts (NASDAQ:EA)
Office Depot (NYSE:OD)
Home Depot (NYSE:HD)
Dollar General (NYSE:DG)
Dollar Tree (NASDAQ:DLTR)
Hot Consumer Stocks in the Stay-at-Home Economy: Amazon (AMZN)
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Arguably the hottest of hot consumer stocks winning in the stay-at-home economy is Amazon. That’s because this company has exposure to multiple booming stay-at-home economic trends.
Consumers are spending more money online. Amazon has the biggest e-commerce platform in the U.S.
At the same time, consumers are spending way more money on grocery delivery, online grocery platforms, video streaming, and gaming. Amazon owns a physical grocer with a delivery arm in Whole Foods. The company has an online grocery platform with AmazonFresh. The company also has the second biggest video streaming platform in the world with Amazon Video, and the world’s biggest video game streaming platform in Twitch.
In other words, Amazon is in every channel that consumes are increasing their spend right now. That bodes well for AMZN stock during these turbulent times.
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Largely because consumers are bulk-buying consumer staples products, Walmart has been a big winner amid the coronavirus pandemic.
According to documents seen by The Wall Street Journal, Walmart’s U.S. store sales rose 20% in March. Meanwhile, Walmart.com sales rose by more than 30% over the past eight weeks.
All of that is because consumers are buying everything from groceries, to toilet paper, to at-home workout equipment … and Walmart sells all of that. At discount prices, too, which is important because millions of consumers are losing their jobs right now, and shopping on a budget.
Net net, given its positioning as America’s largest discount general merchandise retailer, Walmart should succeed in this turbulent economic environment.
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When American consumers are bulk-buying, there’s no place better to do it than Costco.
It should be no surprise, then, that as the coronavirus pandemic has sparked consumers to bulk-buy like never before, Costco’s comparable sales rose 12.3% in March.
This dynamic should persist for the foreseeable future. So long as the pandemic is spreading, consumers will keep bulk-buying. So long as they keep bulk-buying, Costco’s comparable sales trends will remain red hot. This operational momentum should keep COST stock on an upward trend.
I’d caution, however, on valuation. COST stock presently trades at 34-times forward earnings. At that elevated valuation, there’s a very reasonable argument that bulk-buying upside is already priced in.
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Much like Walmart and Costco, Target has benefited amid the coronavirus pandemic from a wave of panic bulk-buying.
Target management said in late March that comparable sales for the month were trending 20% higher, led by a 50%-plus uptick in essentials comparable sales. This uptrend in comps will persist so long the coronavirus pandemic keeps spreading, and so long as consumers remain under “stay at home” orders.
This attractive valuation, coupled with favorable fundamental drivers, should enable TGT stock to meaningfully outperform going forward.
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As restaurants have closed down, there has been a huge surge in grocery shopping. According to NYT data, in a 7-day period that ended March 18, grocery sales were up 79% year-over-year.
That’s great news for Kroger, America’s largest grocer. Comparable sales at Kroger rose 30% in March amid a surge in grocery shopping.
This trend will persist. Restaurants will remain closed for the next few weeks, at least. Consumers will keep up buying groceries in bulk for the next few weeks, at least. Kroger stock will keep heading for the next few weeks, at least.
That’s especially true since, at 12.7-times forward earnings with a 2% yield, KR stock offers an attractive valuation and steady income, alongside surging sales.
Sprout’s Farmers Market (SFM)
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Alongside Kroger, Sprout’s Farmers Market is another grocery stock which has been among the hottest consumer stocks in the market recently.
Sprout’s is much smaller than Kroger. The former operates about 340 supermarkets across the U.S. The latter operates more than 2,700. Nonetheless, Sprout’s is still one of the five big grocery store chains in America, and is consequently a big beneficiary of increased grocery shopping.
Grocery shopping trends will remain healthy for the next few weeks, at least. These favorable fundamental trends — coupled with what is an attractively discounted valuation of 15-times forward earnings — should propel out-performance in SFM stock going forward.
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When consumers do their panic grocery shopping, they are buying home food and drinks. Nielsen said recently that baking yeast sales rose 231% for the four-week period ended March 21. Canned meat sales surged 132%, pasta sales surged 95% and soup sales rose 90%.
Another hot item in this group? Nespresso coffee cups, according to NYT.
Who owns Nespresso? Nestle. The beverage giant also owns a variety of other home beverage products, the sum of which are likely seeing huge demand amid this pandemic.
Net net, as one of the world’s largest providers home beverages, Nestle is well-positioned to see robust sales increases as consumers flock to grocery stores. These robust sales increases should continue to make NSRGY stock one of the hotter consumer stocks in the market.
Constellation Brands (STZ)
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Consumers aren’t just buying coffee cups at the grocery store. They are also loading up on alcohol. According to NYT data, alcohol sales are actually up about 25% amid the pandemic.
And, believe it or not, Nielsen data actually finds that one of the most popular and in-demand alcoholic beverages during this pandemic is Corona beer.
Alcoholic beverage giant Constellation Brands is the maker of Corona beer. The company is also a major investor in cannabis producer Canopy Growth (NYSE:CGC), and consumers have apparently been panic-buying weed.
All in all, then, Constellation Brands is well positioned for a robust increase in sales amid an uptick in demand for alcohol and pot.
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Another category which has seen a big uptick in consumer spending amid the coronavirus pandemic is music streaming — and the most important company in that space is Spotify.
Long story short, it appears that because consumers are stuck working at home, they are listening to music more, and are more willing to pay up for premium, ad-free music subscription services. In that category, Spotify is the unparalleled leader. The company should consequently see an uptick in paid user and engagement growth in March and April.
However, it’s worth mentioning that a lot of music listening time happens while consumers are commuting and/or working out. Consumers aren’t doing either of those things right now. As such, Spotify also has some headwinds here.
Alongside Spotify, another important player in the music streaming category is SiriusXM.
The attractive thing about SiriusXM stock — relative to Spotify stock — is that, despite both companies having exposure to music streaming tailwinds amid the coronavirus pandemic, SIRI stock is off about 30% from recent highs, while SPOT stock is down just 15% from recent highs.
In other words, despite having largely similar businesses, SiriusXM has seen its stock price hit much harder than Spotify’s stock price.
The implication is that, once quarterly numbers roll around and both SiriusXM and Spotify report better-than-expected numbers from coronavirus-related tailwinds, SIRI stock will bounce more, because of its bigger pre-earnings drop.
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Music streaming isn’t the only streaming entertainment channel in which consumers are spending more money right now. Video streaming is seeing an uptick in spend, too.
According to NYT data, consumer spend on video streaming services increased by more than 30% in the last week of March.
The most obvious beneficiary of this uptick in video streaming spend is Netflix. That’s because Netflix is the 400 pound gorilla in this space, with 167 million global subscribers.
As goes the video streaming industry, so goes Netflix. The video streaming industry is booming right now. Consequently, NFLX stock will boom, too.
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Perhaps the biggest beneficiary of the rapid increase in consumer demand for video streaming services is Disney.
That’s because Disney just launched its streaming service, Disney+, in late 2019. What’s the best possible catalyst for Disney+ to gain mainstream traction quickly? A pandemic, in which no one can go outside, and video streaming services like Disney+ are the best entertainment option.
In other words, the pandemic will accelerate mainstream adoption of Disney+ globally. Indeed, it already has. In just five months, Disney+ has amassed 50 million global subscribers.
Yes, Disney’s other business — theme parks, cruises, box office, and linear televisions ads — are being killed amid this pandemic. But, those businesses will bounce back once the pandemic fades. In the meantime, the company’s true growth business — Disney+ — will be on fire.
Ultimately, that means DIS stock should both weather the coronavirus storm going forward, and bounce big once the virus passes.
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Another streaming service provider which should win big because of the coronavirus pandemic is AT&T.
AT&T owns HBO. HBO has its own streaming service, called HBO Now. But, more excitingly, AT&T is going to launch its new streaming service, HBO Max, in May. This streaming service will include all HBO content, alongside tons of content AT&T acquired from its TimeWarner acquisition.
In other words, HBO Max is AT&T’s Netflix — and it’s going to launch at a perfect time.
It is quite likely that millions of bored consumers, still largely stuck inside in May, sign up for HBO Max in a hurry, and that the streaming platform is a huge hit from day one.
If so, then AT&T stock should bounce back in May on this big success, much like Disney stock has bounced back on Disney+’s success.
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A less obvious — and more prolonged — way to play the streaming video boom is by buying Roku stock.
Most of Roku’s revenues come from connected TV ad sales. And, yes, ad spending trends will get hit hard in the second quarter, leading to Roku reporting pretty ugly numbers.
But, zoom forward five months. Roku is seeing record engagement today, thanks to the streaming TV boom. Ad dollars always follow engagement. Once ad spending trends bounce back in a few months, then, Roku will turn record high engagement, into record high sales.
That pivot paves the path for a huge second-half recovery rally in ROKU stock.
Yet another consumer stock to buy to play the increase in streaming TV engagement is Apple.
In late 2019, Apple launched its Netflix competitor, Apple TV+. It’s unclear whether or not Apple TV+ is seeing the robust increase in paid demand that Disney+ is. Nonetheless, it is clear that Apple TV+ is releasing several of its original shows to be “free” during this quarantine period.
This is a smart move. Many consumers will watch these free shows because, well, they are bored and the shows are free, so why not? Some will like the shows. Of those that do, some will pay up, and turn into long-term Apple TV+ consumers.
As such, amid the coronavirus pandemic, Apple TV+ should see a substantial uptick in subscribers, which should lead to increased Services revenue growth, and a higher AAPL stock price.
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One category which has seen a huge gain in consumer sales amid the coronavirus pandemic is gaming. Consumer spend on gaming products and services rose more than 50% in the last week of March, according to NYT data.
Leading the way was probably video game publisher Activision. Not only is the company behind a portfolio of games which are the exact type of competitive, online games consumers are playing right now with their friends — such as Call of Duty — but Activision also just launched Season Three of its its Call of Duty: Modern Warfare universe.
In other words, it is quite likely that consumers are playing — and paying up for — Activision games at a robust rate today.
So long as this continues, ATVI stock will continue to be one of the hottest consumer stocks in the market (shares are up 5% year-to-date against a massive market sell-off).
Electronic Arts (EA)
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Electronic Arts is one of three major console video game publishers, with a robust content portfolio that includes FIFA, Madden, Apex Legends, Sims, and Star Wars.
Just look at how search interest in some of these titles has surged over the past few weeks. Clearly, consumers globally are staying inside and playing EA games more.
This trend will persist for the next few weeks, at least. Even once it fades, EA is supported by powerful, long-term growth tailwinds in increased consumer experience digitization, eSports, and new console upgrades towards the end of the year.
Big picture: EA stock is a long-term winner, with significant near-term tailwinds.
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Another video game publisher which is winning big because of increased video game engagement and spend in Take-Two.
The maker of series such as Grand Theft Auto and NBA 2K has clearly seen a huge uptick in consumer interest in its games during the pandemic. Some of that has to do with a recent NBA 2K tournament that the NBA just hosted, wherein ESPN aired NBA 2K games played between NBA players.
Much like EA and Activision, though, Take-Two is much more than just a near-term coronavirus play. The company is supported by secular tailwinds in increased video game engagement and spend, and esports.
As such, I’d stick with the rally in TTWO stock — both for now, and for the long haul.
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Believe it or not, while the market has plunged this year, Nintendo stock has actually risen 4% to sit just shy of 52 week highs.
The strength in NTDOY stock can be attributed to huge demand for the Nintendo Switch gaming console. Long story short, the Switch has been the hottest game console in the market for the past few years. One of its greatest attributes, relative to traditional consoles, is that it’s movement-based, and consumers are increasingly looking for movement-based things to do because they can’t go to the gym.
Case-in-point: my own household. We own a Switch. We’ve spent upwards of $100 on new games like Just Dance and Mario & Sonic at the Olympic Games Tokyo 2020 as active entertainment alternatives, in a sea of passive entertainment options.
My thinking is we aren’t alone. A ton of households have done something very similar, meaning Nintendo’s sales are likely booming during this pandemic.
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Not surprisingly, e-commerce sales are up during the coronavirus pandemic, mostly because several physical stores are closed.
More surprisingly, though, arts-and-crafts e-commerce leader Etsy hasn’t seen a steep fall of in sales because of the pandemic. One would presume that demand for arts-and-crafts products would get slammed in a pandemic. That hasn’t been the case. Gross merchandise sales fell just 2% in the third week of March, according to Etsy management.
Broadly, then, it appears that e-commerce tailwinds are offsetting a drop in consumer discretionary spend for Etsy.
So long as this remains the case, ETSY stock should outperform in the retail world.
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Much like Etsy, e-commerce home furniture platform Wayfair was expected to see a steep fall off in sales amid massive declines in consumer discretionary spend.
However, that hasn’t been the case.
Management announced in early April that the platform has seen increasing sales momentum recently, and that the company will meet or exceed its first quarter guidance for revenue growth and profit margins.
In other words, we are again seeing a case of accelerating e-commerce tailwinds offsetting slowing consumer discretionary spending headwinds.
So long as this continues, W stock — which is already up 285% from the lows — will keep bouncing back.
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A “picks-and-shovels” way to play the e-commerce boom amid the coronavirus pandemic is by buying Shopify.
Shopify is an e-commerce solutions provider. The company essentially builds e-commerce enabled websites for all merchants and retailers.
Amid the pandemic, many merchants and retailers have been forced to close their physical operations. If they still want to make money, they have to do so online, which means they have to build e-commerce enabled websites.
Who builds those better than anyone else? Shopify.
As such, it is quite likely that Shopify has seen a surge in demand over the past month. This surge is not a one-time thing. Instead, Shopify will turn many of these merchants and retailers into long-term customers, meaning that SHOP stock isn’t just a good investment today — it’s a good investment for the long haul, too.
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Not everyone can physically go grocery shopping. Even further, not everyone wants to.
That’s why demand for online grocery delivery and meal kit maker services has surged amid the coronavirus pandemic. The biggest and most important company in that space is HelloFresh.
HelloFresh is a big and growing meal-kit maker which has seen its share of the U.S. meal-kit market grow from 12% in 2016, to 26% in 2019. These huge market share gains can be attributed to HelloFresh’s superior speed, simplicity and convenience. Relative to peers, HelloFresh’s meals are easier to make, take less time and require less labor and ingredients.
This winning strategy will enable HelloFresh to continue to dominate the meal kit category for several years to come. The company is also already profitable on an adjusted earnings before interest, taxes, depreciation and amortization basis, and will only get more profitable with increased scale from the coronavirus pandemic.
Net net, if you’re looking for a pure grocery delivery play at this time, look at HelloFresh.
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While not everyone can or wants to do grocery shopping, not everyone can or wants to cook. That’s why demand for food delivery services like GrubHub has skyrocketed amid the coronavirus pandemic.
GrubHub has announced that they’ve seen a record number of new users and restaurants join the platform over the past month, as restaurants have closed their doors and consumers have turned towards food delivery options.
Still, I’d be a bit cautious on GRUB stock simply because GrubHub continues to cede market share in the food delivery space to DoorDash, Postmates, and Uber Eats. This market share erosion has been going on for a few years.
So long as it continues, the implication is that GrubHub could ultimately one day be pushed out of the food delivery space it invented. That risks makes GRUB stock unnecessarily risk here.
Office Depot (OD)
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One of the bigger surprises from the NYT’s report is that consumers have been spending more at office supplies stores like Office Depot.
This is because employees are working from home. They are upgrading their homes to be at-home offices. That means more pens, more paper, more computer accessories, and the like.
Where do you buy that stuff? Office Depot.
But, where else can you buy it? Walmart. Amazon. Target.
Because of this, I’m not convinced that Office Depot can turn a recent uptick in sales, into long-term success. There’s simply too much competition from much bigger, more capable players.
Home Depot (HD)
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Home improvement sales are also surprisingly up during the coronavirus pandemic. That’s probably because there’s no better time to embark on do-it-yourself home improvement projects than… well… when you’re stuck at home.
In this market, Home Depot is the biggest player.
As such, so long as consumers remain cooped up at home and stay occupied by doing DIY home improvement projects, Home Depot’s sales should generally continue to trend higher.
This near-term strength, coupled with Home Depot’s long-term dominant positioning in a secular growth home improvement market, makes HD stock quite attractive here and now.
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The bull thesis on Lowe’s is very similar to the bull thesis on Home Depot.
Consumers are stuck at home. To entertain themselves, they are embarking on DIY home improvement projects. This leads to a near-term sales boost for Lowe’s and Home Depot. At the same time, these two companies are the two dominant players in a home improvement markets that grows alongside the economy.
Thus, in both the near- and long-term, LOW stock looks good.
The one thing I’d to like add: valuation. HD stock trades at 20-times forward earnings. LOW stock trades at 16-times forward earnings. This is about as wide as the valuation gap between these two stocks has ever been… and it means LOW stock could have explosive rebound potential in the back-half of 2020.
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What’s one of the easiest home improvement projects consumers can knock out during quarantine?
Painting. It should be no surprise, then, that consumer interest in painting has surged amid the coronavirus pandemic. Long story short, consumers are using the extra down time stuck at home, to finally get around to re-painting the guest bedroom.
That’s great news for Sherwin-Williams, the largest paint company in the world.
Yet, SHW stock trades at a relatively discounted 22-times forward earnings multiple. That attractive valuation, coupled with favorable near-term demand drivers, should help SHW stock outperform peers for the foreseeable future.
Dollar General (DG)
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Discount shopping is also up amid the coronavirus pandemic. That’s for two reasons.
First, consumers are bulk-buying, and when bulk-buying, prices can add up. So, consumers opt-for for discount retailers to bulk purchase.
Second, millions of consumers are getting laid off. Millions more are concerned about being furloughed and/or taking pay cuts. Budgets across the nation are tight. When budgets are tight, consumers penny pinch. And penny-pinching consumers tend to shop at dollar stores.
That’s great news for Dollar General, one of the major dollar store operators in the U.S. That’s why, while pretty much every other company is firing or furloughing employees, Dollar General is nearly doubling its normal hiring rate into the end of the April.
So long as the virus keeps spreading, and so long as the economic fall-out keeps getting bigger, then Dollar General’s sales and DG stock will remain on an uptrend.
Dollar Tree (DLTR)
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Lather, rinse, repeat. The bull thesis for Dollar Tree is nearly identical to the bull thesis for Dollar General.
The DLTR bull thesis is just slightly more enticing for one reason: valuation.
Historically, these two stocks have traded at very similar valuation levels. Today, however, that isn’t the case. DG stock trades at nearly 23-times forward earnings, above its five-year-average multiple. DLTR stock trades at 16-times forward earnings, well below its five-year-average multiple.
Consequently, if you’re looking for a dollar store stock to buy during the pandemic, I’d go with DLTR for valuation purposes.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long AMZN, NFLX, ROKU, and SHOP.