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At this point, it’s difficult to find good coronavirus stocks to buy. After all, at this point the market has priced in both the direct and indirect effects of the pandemic.
Biotech and pharmaceutical firms racing to develop a vaccine have seen their stock prices soar. “Work from home” beneficiaries like Zoom Video Communications (NASDAQ:ZM) and DocuSign (NASDAQ:DOCU) have been among 2020’s best tech stocks. If anything, the strategy now would seem to be find stocks that either have been left out of the rally, or that could benefit from a successful vaccine and/or improved treatments.
But there are a few coronavirus stocks out there that still look intriguing — if investors know where to look. And these three stocks look more intriguing recent news.
After months of stalled negotiations, a federal stimulus bill seems at least possible. President Donald Trump has expressed some support for a $1.5 trillion plan released by a bipartisan caucus in the House of Representatives.
A package of that size can create some winners. Here are three of them:
Coronavirus Stocks to Buy: Lakeland Industries (LAKE)
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When the pandemic first came into broader view, personal protective equipment manufacturers like Lakeland were the early winners. LAKE stock, along with peer Alpha Pro Tech (NYSEAMERICAN:APT) actually saw something like a bubble in late February.
It’s possible that frenzied trading still colors the LAKE story in the minds of some investors — because the stock at this point seems too cheap. Earnings for the first half of fiscal 2021 (ending January) have been unsurprisingly spectacular. Lakeland has earned $2.23 per diluted share in the first six months, against just 11 cents the year before.
The question is whether that demand will persist. Certainly, there will be some tapering as normalcy returns. But Lakeland profits almost certainly don’t go back to past levels. The company has won a significant amount of new customers, as a worldwide manufacturing footprint has allowed it to fill orders others can’t. Many of those new customers, as Lakeland management has noted, won’t go back to relying on a single supplier.
Margins have improved and plans for fewer products going forward should maintain some of that improvement. Meanwhile, the pandemic has hit demand for Lakeland’s industrial products, and that demand should return as normalcy does.
This still should be a company that can easily earn $1 per share annually going forward, which makes a current price below $21. And the stimulus bill could be a boon for Lakeland. State and local governments, in particular, need help to rebuild depleted PPE inventories. The federal government likely has to provide that help.
If it does, strong earnings continue into the second half of this year and calendar 2021. And if Lakeland keeps earning over $1 per quarter, instead of annually, LAKE stock isn’t going to stay near $20.
Owens & Minor (OMI)
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The same catalyst holds for Owens & Minor, which too produces personal protective equipment. The company already has a significant contract with the U.S. government and could be well-positioned to garner additional business if local and state funding improves.
That aside, however, the two stories are quite different. Owens & Minor’s core business is in medical distribution — and that business has been under pressure for some time. The risk is that those struggles offset PPE growth.
That risk is amplified by O&M’s balance sheet — which too is very different. Lakeland paid off all its debt in the second quarter, while Owens & Minor still has significant borrowings to repay.
Of course, that risk creates reward as well. OMI’s leverage means more upside is possible on relatively modest changes in the valuation of the overall business. Indeed, that’s already played out: the stock has nearly tripled over the last year. It’s outperformed LAKE even though the PPE tailwind hits a far smaller portion of its business.
That can continue if PPE demand stays elevated. And so, while LAKE from here looks like the more attractive play on the two given its focus, OMI has the higher potential rewards given its leverage.
Dollar General (DG)
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Investors might not think of Dollar General as a coronavirus stock. But they should. The company has seen much the same tailwind as grocers like Kroger (NYSE:KR), with “stay at home” orders driving demand.
Dollar General, however, focuses more on a lower-income demographic. That’s a demographic that would benefit most directly from further stimulus checks, which seem almost certain to be a part of any relief package. Indeed, the checks helped fiscal Q1 and Q2 results.
Those results have helped send DG stock to all-time highs. New stimulus likely means new highs as well.
And even if the stimulus doesn’t arrive, or is smaller than hoped, investors still own one of the country’s best retailers. Valuation is reasonable as well, at less than 21x forward earnings. There are other coronavirus stocks that get much more attention, but there are few more worth owning than DG.
On the date of publication, Vince Martin held a long position in LAKE.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.