The markets were up today to finish the best week since early November even as the most recent jobs report missed estimates. It appears to be a case of déjà vu, with investors betting that the negative economic news will bolster the odds that the newest COVID-relief package will get approved. It was only just in December when we were in the same situation.

This spending is viewed by many to be critical to help support the economy. One area of the package that the President appears to be open to negotiation is the direct payments to individuals. Whether it’s $1,000 or $1,400, I expect that money will get to the people that need it the most. That’s why I am recommending stocks of companies that should benefit from Americans spending this stimulus, such as Costco Wholesale Corporation (COST), Target Corporation (TGT), and Dollar Tree, Inc. (DLTR).

But before I get into evaluating those stocks, let’s take a look at the markets over the past week.

Market Commentary

Last week’s pullback appears to have been temporary, as stocks finished the week hitting record highs once again. Last week’s high volatility also took a break, after soaring to its highest level since October. Of course, this was due to individual investor excitement on a handful of stocks, leading to sharp rises in prices.  

Things seemed to have settled down, at least a little for now, as the market rally was driven by the President’s push to pass a $1.9 trillion relief package. Positive news on the vaccine front from Johnson & Johnson (JNJ) also added to the mix. The company filed for an Emergency Use Authorization of its single-shot candidate. While not as effective as Pfizer’s (PFE) and Moderna’s (MRNA) vaccine, a single shot that doesn’t require special storage could be a game-changer in getting more of the population vaccinated.

A faster rollout of COVID vaccines could accelerate the speed of the economic recovery and trigger a domino effect leading to higher corporate profits and higher stock prices.

Market Outlook

As I mentioned last week, the market had been trending higher since November based on positive news regarding the vaccine and a return to normal. But additional spending is needed to keep the train rolling. The President seems to agree. He believes a third round of payments should help families struggling to pay their bills. This should help bolster our economy until the vaccine rollout gains steam.

While the actual amount and the income cutoff are still being discussed, there’s no question that the money will go to lower-income families that need the payments to put food on the table. This should lead to gains for stocks that should see much of that money spent at their stores; especially stores that carry essential items such as food, pantries, and cleaning items. That’s why I am highlighting the three companies below.

Costco Wholesale Corporation (COST)

While not everyone has a Costco card, the people who do, love it. Being able to buy essential items in bulk, especially during the pandemic, has been a godsend. So, as you can imagine, the company and its stock fared quite well last year, with the stock finishing up 32.7% for 2020. While the stock has fallen back some this year, the company just reported massive numbers for January. The company’s comparable traffic rose 5.1% in the U.S, and adjusted comparable sales surged over 15% year over year.

Now, if I got my stimulus check, a Costco store is certainly one I would want to visit to get my essentials. COST’s strategy to sell products at significantly discounted prices has driven strong growth and makes it a winner for cash-strapped customers looking for low-cost necessities.

The company has a B grade, which represents a Buy Rating in our POWR Ratings system. The company also has a Sentiment Grade of B, which means analysts also love the stock. For more of COST’s Component Grades like Growth, Value, and Momentum, click here. In addition, COST is in an A rated industry (Grocery/Big Box Retailers), and I prefer to recommend stocks in an A or B rated industry. For other stocks in that industry, click here.

Target Corporation (TGT)

Another store I would be sure to visit is Target. While I certainly miss going to TGT stores and getting things I probably don’t need, I do love their online ordering and pickup store option. TGT offers plenty of low-cost items that can be ordered online and delivered or picked up at stores.

The company had a robust third quarter as earnings and revenues outperformed estimates. During the quarter, online and in-store sales rose 20.7%, while digital sales surged 155%. The company’s curbside pickup was also very popular, increasing by more than 500%. Furthermore, its home delivery service, Shipt, increased by nearly 280%.

TGT has a Strong Buy Rating in our POWR Ratings system. Not only is it in the same A-rated industry as COST, but it is ranked #1 in that industry. The company has a Growth Grade and Value Grade of B, indicating that its growth prospects are not only strong, but it’s trading at an attractive valuation. Plus, analysts love the stock with a Sentiment Grade of A. If you want to know its Quality, Momentum, and Stability Grades, you can find them here.

Dollar Tree, Inc. (DLTR)

If I want to quickly pick up a few items, I go to DLTR, another low-cost store where people could spend their stimulus checks. At most of its stores, every product is only $1, which is perfect for Americans struggling right now. After the government’s first round of stimulus payments, DLTR reported stronger-than-expected results.

The company is also looking to expand its product line with a few at slightly higher prices (up to $5). Management is expected to roll out this program to 500 stores in the spring. The company is also expanding its online presence with the “buy online, pickup in store” program and has experimented with home delivery through Instacart and Shipt.

Like TGT, DLTR has a Strong Buy Rating and is ranked #6 in the Grocery/Big Box Retailers industry. The company has Growth Grade of A, not surprising given that earnings are expected to rise 28% this quarter. DLTR also has a Value Grade of B, which makes sense with a forward ratio of only 16.16. For the rest of DLTR’s grades, make sure you visit the stock’s full POWR Ratings here.

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COST shares . Year-to-date, COST has declined -5.55%, versus a 3.70% rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...

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