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Stocks  | July 28, 2020

While earnings season moves ahead, volatility has once again increased in equity markets. Investors now wonder if they should take off rose-colored glasses, especially come fall. Our Presidential election will take place on Tuesday, Nov. 3. Both political parties are expected to hold conventions in the second half of August. Therefore, today I’ll discuss five election stocks to buy as the race heats up in the coming weeks.

Markets are always forward-looking. Between now and November, they will likely factor in various developments over the election. Investors prefer certainty over indecision. Thus, if we have a neck-and-neck battle in the run up to the final day, volatility will heat up.

In the past several months, broader market action seems to be tied to news headlines about restarting economic activity across the world and the number of new Covid-19 cases on a given day. Yet with September onward, markets may begin to react alongside poll results.

So which stocks could be appropriate for the average investor at as the campaign battle intensifies? Here are my top five election stocks to buy:

  • Apple (NASDAQ:AAPL)
  • Beyond Meat (NASDAQ:BYND)
  • Cisco Systems (NASDAQ:CSCO)
  • eBay (NASDAQ:EBAY)
  • Walmart (NYSE:WMT)

Election Stocks to Buy: Apple (AAPL)

52-Week Range: $192.58-$399.82

Dividend Yield: 0.87%

Most investors regard Apple as a tech company, but not Warren Buffett. The legendary investor views it as a compelling consumer business thanks to its popularity worldwide.

In a recent interview he said: “I do not focus on the sales in the next quarter or the next year. I focus on the … hundreds, hundreds, hundreds millions of people who practically live their lives by [iPhone]… It’s probably the best business I know in the world.”

AAPL shares now comprise around 20% of Warren Buffett’s portfolio with Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B). Apple will report third-quarter earnings later this month on July 30. Between now and then, many other tech darlings of Wall Street are reporting. We’ll likely see increased volatility in the broader markets, which may put pressure on AAPL stock in the short run.

Earlier in April, the company reported muted Q2 earnings. It posted quarterly revenue of $58.3 billion, an increase of 1% year-over-year, and quarterly earnings per diluted share of $2.55. Moreover, international sales accounted for 62% of the quarter’s revenue. In turn, Wall Street noted that revenue growth slowed down as the company saw supply and demand impact from the novel coronavirus. Furthermore, unlike previous earnings releases, the group did not issue guidance.

Year-to-date, Apple shares are up over 28%. But that metric tells only half the story. On 23 March, AAPL stock hit a recent low of $212.51. Now it’s hovering at $370. So since then, AAPL stock is up an eye-popping 75%. When the company reports, investors will look to justify the jump.

In August 2018, Apple became the first U.S.-based company to hit a $1 trillion valuation. Currently the market-cap is about $1.6 trillion. With such a market-cap, it would be safe to assume that Apple shares are unlikely to be held down by the market for too long, even in uncertain times brought on by Covid-19. The Street and Warren Buffett regard large market-cap companies as good, stable long-term investments.

The group also has long-term catalysts, including the opportunities yet to be offered by the upcoming 5G iPhone. Thus, long-term investors may regard any dip in APPL shares as a good opportunity to buy into the business, especially prior to the election.

Beyond Meat (BYND)

52-Week Range: $48.18-$239.71

Dividend Yield: N/A

Beyond Meat produces plant-based meat substitutes. The company was founded in 2009 and went public in 2019. Many scientists and analysts agree that the discourse around reduced consumption of animal-based meat is likely to accelerate in this new decade. And the number of people switching to — or at least trying meatless, plant-based protein — will likely increase.

The group is expected to report Q2 financial results in early August. Earlier in Q1, it posted better-than-expected earnings. Net revenue was $97.1 million, a year-over-year increase of 141%. Net income was $1.8 million, compared with a net loss of $6.6 million a year ago.

Beyond Meat is increasing its restaurant partnerships both in the U.S. and internationally. It also made its first entry into mainland China through a partnership with Starbucks (NASDAQ:SBUX). The quarterly results showed that Beyond Meat has been executing well. However, management warned that it saw a decline in sales at the end of March as the pandemic forced many restaurants to close.

Following the release of the results, investors initially showed their renewed faith in the company. BYND stock increased from the $120-level to over $160 in early June. Now it’s hovering around $120. Put another way, it is about flat for the quarter. In the short run, investors should embrace more choppiness with possibly a downward bias in the shares, especially during this mercurial earnings season.

Yet Beyond Meat will continue to ride the plant-based food tailwinds over the next several years. That will likely mean substantial gains in revenues and profits, translating into a higher BYND stock price. I do not expect consumers to change their eating habits and food preferences, especially regarding meat, before or after the election. Therefore BYND stock could be a good election stock to consider.

Cisco (CSCO)

52-week Price Range: $32.40-$57.68

Dividend Yield: 3.08%

In May, California-based Cisco Systems released Q3 results that beat expectations. It reported non-GAAP earnings of 79 cents per share on revenue of $12 billion, a decline of 8% year-over-year (YoY).

The group divides revenue into two main segments, i.e. Products and Services. The Products segment is divided further into three divisions:

  • Infrastructure Platforms (most important), includes sales of core networking technologies of switching, routing, data center products, and wireless;
  • Applications, includes sales of software-oriented offerings that sit on top of Infrastructure Platforms; and
  • Security, includes sales of threat detection, management and security products and cloud and system management tools.

Overall, the results confirmed that the business is stable and diversified. Although the pandemic has already impacted the business, management has taken several steps to protect the balance sheet as well as the safety of employees and continuity of operations.

CEO Chuck Robbins highlighted the potential for further growth opportunities for Cisco due to increased levels of working from home. He said: “The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”

Analysts are expecting 5G internet to be another major growth opportunity for the global technology leader, especially in terms of its infrastructure business. The company is providing operators with a full platform to build 5G capabilities.

Furthermore, Cisco is hoping to become a major player in Industrial Internet of Things (IIoT) by offering solutions to firms wanting to connect industrial systems to the internet. Management is pushing the company toward a mostly subscription-based software business. In Q3 subscriptions brought in 74% of total software revenue.

On June 10, the board declared a quarterly cash dividend of 36 cents per common share to be paid on July 22 to all shareholders of record as of the close of business on July 6. The current yield sits at about 3.1%.

Year-to-date (YTD), CSCO stock is down about 2.4%, hovering at $46. In the coming days, a potential drop below $45 and especially toward $42.5 would make it one of the best election stocks to buy in the long run.

eBay (EBAY)

52-week Price Range: $26.02-$61.06

Dividend Yield: 1.13%

2020 has been a great year so far for investors in eBay stock. YTD, eBay shares are up more than 57%. The company has been one of the beneficiaries of stay-at-home and work-from-home trend.

In late April, the group released Q1 earnings. Revenue of $2.4 billion was down 2% YOY, while GAAP EPS came at 64 cents. The company had 174 million active buyers worldwide. Also during the quarter, the e-commerce group returned $4.1 billion to shareholders through share repurchases and cash dividends.

Prior to the coronavirus days, EBAY stock was for the most part below $40. However, now the momentum is with the shares. In early June, eBay revised its Q2 guidance upward, and the stock rallied. That said, I believe eBay is one another one of the solid election stocks to research further and add to a long-term portfolio.

Walmart (WMT)

52-week Price Range: $102-$134.13

Current Dividend Yield: 1.65%

Walmart is the largest retailer in the world, which makes it one of the most recession-proof stocks to consider. This is especially true when you consider that each week, over 260 million customers shop at 11,500 stores in 27 countries as well as on e-commerce websites. Although Walmart has an all-American reputation, over half the stores are located outside the U.S. It is also the largest employer in Fortune 500.

Over a decade ago, Walmart became a clear beneficiary of changes in consumer spending during the Great Recession’s economic headwinds. And WMT stock has reflected this shopping shift. In January 2010, WMT shares were hovering at $50. Now, they are over $118. Put another way, if you had invested $1,000 in the company in early 2009, you would now have over $2,300. And that does not include any dividend income you would have received.

Therefore, if the current economic contraction were to continue, then investors can potentially expect consumers to minimize expenses by shopping at discount retailers such as Walmart.

In mid-May, Walmart released robust Q1 FY21 results. Quarterly earnings came at $1.18 per share on revenue of $134.62 billion. The group has kept its doors open for business throughout the coronavirus outbreak. E-commerce sales in the U.S. grew by 74% and its same-store sales jumped by 10% in the first quarter as shoppers stocked up due to the lockdown.

Investors were also pleased to see that during the quarter group’s operating expenses as a percentage of revenue fell significantly. Operating expenses accounted for 20.3% of Walmart’s revenue last quarter, versus 20.9% a year ago.

In recent days, the company announced a partnership with Shopify (NYSE:SHOP) whereby the latter’s merchant clients will be able to sell their products directly on Walmart’s third-party marketplace.

The group is expected to release earnings next on Aug. 18. WMT stock is up 10% YTD. I regard it as a stable company for conservative income and total return investors. If you are looking for an election stock to buy, you may want to consider the retailing giant.

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