Covid-19 Resistant Sectors & Stocks

08/26/2020 9:39 am EST

Focus: STOCKS

Joe Duarte

Editor, Joe Duarte In the Money Options

Housing and niche retail are sectors that can continue to outperform during the Coronavirus pandemic, notes Joe Duarte.

Yesterday, after listing our key principles for successfully selecting stocks in the age of Covid-19, we teased out that we would provide specific examples of sectors and stocks to follow.

Let’s start with housing stocks, such as homebuilder D.R. Horton (DHI), which has moved steadily higher as the housing sector is booming buoyed by low interest rates, low housing supply, the Covid-19 influenced exodus from big cities, and previously existing generational demographic shifts (see chart below).

dhi

Table fundamentals for housing. But beyond homebuilders, two retail stocks: Best Buy (BBY), which is set to deliver earnings this and Target (TGT), whose earnings blew out expectations last week have proven to be welcome wildcards in winning portfolios. Both stocks, which I recommended several weeks ago before their major breakouts, have come a long way.

Be that as it may, they are still under accumulation for two reasons: People are preparing to work from home for extended periods, which favors BBY, and the need to furnish new homes and for bargain pricing on food and household items which favors TGT.

 Best Buy has captured a significant portion of the work at home market via rising sales of laptops and technology related items. But under the hood, BBY has also recorded rising sales of freezers and other appliances as many are making long term improvements in their homes in case there are repeating waves of Covid-19 and they need to hunker down again (see chart below).

bby

Meanwhile Target’s attractive pricing on home furnishings, clothing, and home accessories as well as their grocery aisles make their stores attractive for one stop shopping especially in the wake of long term population shifts and migrations.

And while investors have recognized the value and growth potential of housing and related companies such as Target and Best Buy during Covid-19 and potentially its next phase, many of these stocks have come a long way and are due for a breather (see chart below). Nevertheless, as the system evolves, there are other areas of the market which should benefit as Covid-19 and normal life start to coexist.

tgt

In the Sweet Spot with Abbott Labs

As Covid-19 is the new normal, a perfect example of a company that should benefit from this evolution is medical equipment and pharmaceutical giant Abbott Labs (ABT). Abbott is not a sexy high flying medical equipment company, but it is one that is quietly woven into the daily life of millions of patients around the world and one which should benefit as more people choose to stay home for their medical care (see chart below).

abt

Accumulation/Distribution and On Balance Volume (OBV) seem to be ready to rise and the stock is nowhere near overbought.

I own shares in DHI, BBY, TGT and ABT.

Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies. For a FREE trial to Joe Duarte in the Money Options.com, click here.

Related Articles on STOCKS