Bulletin
Investor Alert

Jeff Reeves's Strength in Numbers

Jeff Reeves

June 6, 2020, 12:04 p.m. EDT

Buy this, not that — 5 stocks to trade into now and 5 to avoid

These stocks for your buy list have strong momentum and solid potential

By Jeff Reeves, MarketWatch


Getty Images/iStockphoto

It's hard to fight momentum on Wall Street. Whether the market is surging higher or dropping like a stone, taking the other side of the trade can often end up costing you.

That doesn't mean your only choice is to stampede with the herd and settle for a vanilla S&P 500 (S&P:SPX)   index fund. A number of stocks are outpacing the market so far in 2020, avoiding deep losses in March and rallying more strongly than their peers in April. 

Investors can come out significantly ahead simply by reallocating a bit of your portfolio from the laggards and into the top performers. Here are five trades that offer high-potential alternatives to stocks you may have already heard about. 

1. Buy Alibaba, not Amazon

Global growth in e-commerce was already well underway before coronavirus pandemic created an even bigger tailwind for this megatrend. But if you think Amazon.com Inc. (NAS:AMZN)   is the only online game in town, think again. 

Alibaba Group Holding (NYS:BABA)  is plotting 30% revenue growth this fiscal year and another 25% growth next year — figures that top the admittedly impressive growth of Amazon. Furthermore, while Western nations continue to wring their hands over the influence of Big Tech, with President Trump and the European Union finding a rare issue of agreement as they take aim at Amazon, Alibaba remains quite cozy with the Chinese government and carries much lower political risk.

Even if investors want to believe Amazon can keep growing market share and avoid any regulatory pain, the more than 30% surge of Amazon stock since Jan. 1 seems to indicate that the shares have already priced in much of the stock's current and expected success. 

Alibaba is the go-to choice in Asia, a high-growth market with nowhere near the maturity of Europe or North America, which Amazon dominates. So if you want to ride true e-commerce growth, you should consider Alibaba over Amazon.

2. Buy Regeneron, not Big Pharma

In times of uncertainty, megacap healthcare stocks get a lot of attention as recession-proof investments. After all, people will cut back on just about any other expense before they stop buying the medicine that keeps them healthy. 

Yet Big Pharma names including Merck & Co. (NYS:MRK)  , GlaxoSmithKline (NYS:GSK)   and Pfizer Inc. (NYS:PFE)   have all performed worse than the S&P 500 since Jan. 1 — proving bigger isn't always better and even supposedly stable healthcare companies can suffer when they are reliant on an aging drug pipeline and a growth-by-acquisition strategy.

That's where Regeneron Pharmaceuticals (NAS:REGN)  stands out. The company has received a lot of attention since news in February that it entered an agreement  with the U.S. Department of Health and Human Services to develop vaccines to fight coronavirus. But beyond that short-term potential should Regeneron succeed, the firm has an aggressive research strategy as it develops treatments for other pathogens including influenza virus strains, and embarks on clinical trials for antibody-based treatments to fight conditions ranging from cancer to arthritis.

This high-growth and research-driven firm is uniquely positioned for the future of healthcare — not tying its success to an old generation of drugs. If you need proof beyond its research plans, consider that Regeneron stock has gained an impressive 60% year-to-date.

3. Buy Cheniere, not Haliburton

After oil tumbled into the low $20s this spring — and briefly even saw prices go negative thanks to storage issues — it looked like energy stocks were done. But now oil is back in the high $30s and bargain hunters are rummaging through the oil patch on hopes of a rebound. The logic (if it can be called that) is that oil servicers such as Haliburton Company (NYS:HAL)   and Schlumberger (NYS:SLB)   are natural beneficiaries as energy companies start spending again and resume production in earnest.

That strategy may work as a swing trade, as Schlumberger is up about 60% from its March lows and Haliburton has surged almost three-fold from the low $4 range to back over $12 a share. However, depending on this run to continue seems a dangerous strategy. 

Part of the coronavirus response, particularly in Europe , has been tied to "green" stimulus efforts and not simply a bailout of the old economy. Furthermore, countless think pieces have been written about how the pandemic has once and for all established telework as a permanent model . And don't forget that electric car adoption continues to steadily kill gasoline demand,.

It's hard to find any certainty in the energy sector these days as a result of these trends. But Cheniere Energy Partners (ASE:CQP)   seem to hold less risk than most right now. Cheniere is a midstream natural gas player, a glorified "toll taker" that charges to transport and store natural gas, which is seen by many as a bridge to a clean energy future thanks to its low cost and comparatively cleaner status. There's admittedly not a ton of growth in this stock, but there's reliability — and a generous 7.3% dividend as a hedge.

4. Buy Visa, not Wells Fargo

The stock market rebound is partly due to optimism that the admittedly steep job losses this spring will quickly be reversed as the U.S. economy begins to reopen in earnest. So what better way to play this recovery than via financial stocks?

Wells Fargo & Co. (NYS:WFC)   has started to attract some attention among bargain hunters, as the $110 billion bank looks to turn the page on past missteps over the last few years with a new CEO and new structure , including a dedicated focus on small businesses. Trading at less than 70% of its book value, this stock seems quite interesting to many right now.

But the past scandals of Wells are only the beginning of what should worry investors. A bigger challenge is the wholesale decline of traditional banking in the digital economy. If investors really want a recovery play tied to spending and lending, they should look at payments giant Visa Inc. (NYS:V)   as a true financial leader of the future.

Remember, Wells Fargo has seen its revenue grow by an average of about 2% over the past five years — a sign that there's more going on here than just headlines about fake accounts. Over the same period Visa's revenue growth rate has topped 20% on average. As the push towards cashless and mobile payments continues, this processor will continue to thrive. As the economy revives, more payments means more profits for Visa. 

5. Buy Nike, not Campbell Soup

As quarantine life forces people to cook at home, shares of Campbell Soup Company (NYS:CPB) have surged an impressive 25% from the March lows. Yet this short-term trend can't counteract the longer-term challenges that have been holding this stock back — namely, an aging brand lineup that doesn't connect with younger consumers at all. 

Campbell Soup has made a few big moves in the last year or two, including unloading international businesses to pay down debt and fund the acquisition of North American snack food brand Snyder's-Lance. But that's not a long-term plan for growth, and neither is depending on coronavirus to keep people buying your products instead of dining out.

In stark contrast to Campbell is Nike Inc. (NYS:NKE)  , a sports behemoth with one of the most valuable brands on the planet. The stock not only has a powerful name but a powerful and growing online presence that allows it to sell directly to consumers and enjoy juicy margins. When you consider that Nike’s March earnings report boasted 36% year-over-year growth in its digital sales model, it's easy to understand the potential here.

Remember, Campbell Soup has suffered chronically shrinking revenue in the past few years. Unless you expect coronavirus to last or condensed soup to make a big comeback, then it may not be wise to favor this stock over a growing consumer brand with a decent e-commerce footprint. 

Jeff Reeves writes about investing for MarketWatch. He doesn’t own any of the stocks mentioned in this article.

Read: Zoom’s astounding quarter shows it expects to be a force even after workers go back to the office

More:   If the market can’t provide the beneficial things society needs to save lives, give it a nudge

Link to MarketWatch's Slice.