This year has certainly been a roller-coaster ride for investors, and those nearing retirement might have been holding their breath for some time in March and early April as the price of many stocks reached a low point during this current recession. But many of those stocks have already bounced back from those spring lows, and those investors who could afford to ride out the dip will see greater gains as the economy picks up.
As these companies (and their stocks) recover, now is a good time to pick up shares of great companies that can help bankroll your retirement. There are companies that have proven their mettle over the past few months and will keep flying, while others have seen their share prices fall, providing investors the chance to buy the stock on sale. Target (NYSE: TGT) and PayPal (NASDAQ: PYPL) are both excellent choices whose shares have handled the recession well and are rising, and Starbucks (NASDAQ: SBUX) is a top player whose shares you can currently buy at a discount. Let's find out a bit more about these three stocks.
Image source: Target.
1. Target: Taking care of mass needs
During the pandemic, customers flocked to Target's stores and used the retailer's digital options to stay stocked up on essentials. That fueled massive gains for the retailer, which managed a 24% year-over-year comps increase and a 195% digital sales increase in the second quarter (which ended Aug. 1). It wasn't only the basics that drove comps this quarter. As customers began spending again, there was a strong channel mix increasing sales. This strong showing comes on the heels of the company's concentrated efforts to build up its multichannel approach. Same-day services -- which include order pickup, drive-up, and Shipt delivery, and are all fusions of physical and digital -- grew 273%.
But it's not only this past quarter that indicates the company's strength. Target has been aggressively testing innovative strategies for several years now to keep up with current trends and boost results. It jumped right into the small-store format, finding a way to market its packed stores to customers who want a more intimate experience, and it's pioneering a model home-order fulfillment using its local stores to keep delivery costs down. For the next quarter, the company's adapting to the situation with a longer period of back-to-school sales and parking lot events for contactless purchases for those headed back to college.
Target is still experiencing double-digit sales increases in the third quarter, but the spike is leveling off a bit. The company, however, is not, and investors who held on to the stock despite the March plunge have already seen their shares appreciate about 18% year to date.
2. Square: Driving digital businesses
PayPal is the original online payment option and cash-moving service. Although newer financial technology companies (fintechs) such as Square have entered the market, PayPal is still the leader when it comes to buying online. Despite its behemoth standing, the second quarter was the strongest in the digital payment leader's history, with a 30% rise in total payment volume (TPV) and more than 21 million new net active customers. But while many companies that are experiencing pandemic headwinds, such as Target, are expecting sales to slow down over the next few months, PayPal anticipates continued momentum in the third and fourth quarters. Company management expects 70 million new users in the next two quarters and more than 20% increases in both revenue and earnings per share (EPS).
Image source: Getty Images.
Payment transactions per active account (TPA) were flat year over year, but PayPal has been able to grow its business through new customer accounts, upgraded services, and acquisitions. For example, it offers mobile tap-and-pay and curbside pickup, which strengthen small businesses and make it easier for customers to complete a purchase. This is the right direction for a company with its size and history, and why investors can expect it to keep growing.
PayPal shares have grown almost 490% over the past five years since it parted with eBay and are up nearly 90% year to date. But with lots of consumer acquisition and other growth drivers still expected, those kinds of returns are far from over.
3. Starbucks: Serving up while shopping's down
Starbucks hasn't exactly been one of the COVID-19 winners. Sales dropped 38% year over year in the recent quarter that ended June 28. And that was after Starbucks did everything it could to keep restaurants operating and continue serving customers. It introduced curbside pickup and drive-thru in many locations, and it stepped up mobile order and pay, and delivery. But with 44% of stores open, which is how the quarter began, there are only so many sales to be made. And expensive coffee's not quite a need, so people looking to save will hold off on the splurge.
Image source: Starbucks.
But things are improving. The quarter started with a 65% year-over-year comps decline and improved to 16% lower by the end, with 96% of stores open. Unemployment has somewhat come back down from skyrocketing levels and government stimulus is having some positive effect on the U.S. economy. The coffee giant shined where it could over the quarter, with a 21% year-over-year increase in packaged coffee. By comparison, the general coffee industry grew 13% over the same period.
Starbucks expects sales to improve to the point where it only has a 10% to 15% decline over 2019 numbers in the fourth quarter, and it forecasts earnings per share to turn positive. These gains are highly bolstered by better expectations for the Chinese market, which, along with global sales, were Starbucks' saving grace during the third quarter. The international diversification will help the company get back to speed going forward. Margins will remain pressured as the company follows social distancing and sanitation rules, but they're expected to show improvement.
Starbucks is coming out of the pandemic in a very strong position. Customer satisfaction and loyalty numbers are up, as is market share. As a result of the pressure to maximize other channels, the company is even more heavily focused on pivoting to an omnichannel strategy that relies heavily on digital. Under CEO Kevin Johnson's direction, Starbucks had already been committed to integrating technology all over its operations, such as utilizing artificial intelligence to anticipate and fulfill customer needs. Starbucks stock is down about 4% year to date, making this an excellent opportunity to pick up shares to bankroll your retirement before they fully recover and get back on their full growth trajectory.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings, Square, and Starbucks. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, short September 2020 $70 puts on Square, long January 2022 $75 calls on PayPal Holdings, and short November 2020 $85 calls on Starbucks. The Motley Fool has a disclosure policy.
3 Stocks to Bankroll Your Retirement was originally published by The Motley Fool