3 Stocks to Buy on Their Current Dip

The stock market is not always a barometer of what is going on in the economy. For example, even as the economy continues to be hamstrung by the novel coronavirus, many stocks continue to only go in one direction … up.

But that isn’t the case with all stocks. And in the right situation that can be very profitable for you as an investor. Think of it like finding a great Black Friday deal. At any given moment in the stock market, there are a number of stocks that are trading at a discount to their true value.

For many investors, one of the keys to picking these stocks is to have a shopping list in mind. If there are a group of core stocks that you like, a dip can be a time to initiate a position or add to your holdings, at a great price.

And even though the market has largely recovered from the novel coronavirus, there are several of these stocks available to investors right now.  These are solid blue-chip companies with a stock price that has room to move higher compared to recent highs.

The first of these companies to look at is Disney NYSE: DIS. The novel coronavirus hit Disney with a perfect storm. Think about it. The virus closed the company’s theme parks, put their cruise ships in dry dock, and shut down their movie studios.

Yes, millions of Americans now had ample time to watch Disney+, the company’s streaming service. But that service was already launched. And in many cases, Disney will not realize the revenue from their free trials until later this year. However, the company is launching Disney+ in 8 European countries on September 15.

The company is not without its concerns. The most immediate concern is the movement by cast members to delay the planned July 1 reopening of the company’s Walt Disney World in Florida and Disneyland in California over concerns of a surge in positive cases for the novel coronavirus.

And the company also has potential concerns about financing the debt they took on from its purchase of Twenty-First Century Fox. The company has $13 billion payable in the next 12 months, and it’s unlikely that the company will grow its revenue and free cash flow as it has in the past. This would put pressure on the company’s earnings and may serve to depress the stock price in the short term.

However, the stock is still over 30% down from its 52-week high, and that gives investors a nice long runway to snap up shares at a discount.

The next stock to consider is AT&T NYSE: T. The Covid-19 pandemic has changed many shopping habits, including the way consumers shop for mobile phones. Now keep in mind, it doesn’t mean that consumers are holding off on buying mobile phones, they’re just buying them differently.

Of course, a downside to that is that AT&T as well as its rival T-Mobile NASDAQ: TMUS have recently announced job cuts. The Wall Street Journal reports that the company will cut 3,400 jobs in coming weeks. And these cuts are in addition to hundreds of positions that may get cut through store closures.

The announcement of job cuts is never a good thing for consumers to hear, but it has to be somewhat soothing for investors who have been concerned that AT&T would cut its robust dividend. Currently, the company has a dividend yield of around 6.9%. The company’s dividend has been a key reason why income investors have flocked to the stock.

AT&T is also expecting to get a lift from the launch of its own streaming service, HBO Max. Initial returns have been underwhelming. This may be due, in part, to HBO Max being the most expensive of all the streaming services. But, industry analysts are expecting the services subscriber base to pick up. The reason is that while millions of Americans still prefer to stay at home, they are looking for new streaming options. And HBO Max has a content library that will appeal to adults as much as children.

The last of our three stocks is Starbucks NASDAQ: SBUX. Like Disney and AT&T, Starbucks is over 30% shy of its 52-week high. The stock is comfortably off its March lows but has curiously not posted significant gains as the economy opens.

One concern is the company’s exposure to China. While Starbucks is benefiting from the misfortune of Luckin Coffee NASDAQ: LK, the company is trying to penetrate a country that does not have a coffee culture. But Starbucks is pushing forward. The company added 57 net stores in April and May and remains on track to add 500 net new stores this year. But the company is learning from Luckin and testing a “grab and go” model that may be more appealing to the Chinese consumer.

Growth in China will be important because while the company continues to have a loyal customer base in the United States, it’s fair to ask how much growth is left?

Investors should keep an eye on the company’s recent push to introduce plant-based breakfast sandwiches to customers. Starbucks is partnering with Impossible Brands to provide a menu alternative that is consistent with the company’s announced sustainability goals. The company had previously partnered with Beyond Meat NASDAQ: BYND.