Now that the Biden administration is fully in charge, student debt forgiveness has moved to the front burner. Consider these numbers. There is an estimated $1.7 trillion in student debt. The average student carries approximately $30,000 in student loans.
If $10,000 of student debt were to be canceled, there are estimates that one-third of borrowers (between 15 million to 16.3 million) would become debt-free. Of course, if the number hits $50,000 as some lawmakers are suggesting the impact would even greater.
Putting aside personal thoughts on the wisdom of pursuing this path, it has the potential to unleash a substantial stimulus into the economy.
And as an investor, it’s fair to ask where that money would go. After all, there’s no harm in having investors profit from this stimulus as well.
A counter-argument is that the absence of one monthly payment may not provide enough money to make an impact. However, Senator Elizabeth Warren referred to the effect student loans have in preventing many in the millennial and Gen-Z generations from pursuing big picture life goals such as buying a house, starting a business, or starting a family.
With that in mind, we’ve put together this special presentation that looks at 7 stocks that are likely to benefit if borrowers are set free from the burden of student loans.
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- Rocket Companies
- KB Home
- Home Depot
- Shopify
- Etsy
- Kimberly Clark
- Visa
#1 - Rocket Companies (NYSE:RKT)
If the housing market is about to get flooded with prospective buyers, now is the time to buy shares of Rocket Companies (NYSE:RKT). Rocket, which is the parent company of Quicken Loans, is the largest pure-play mortgage lender. And the company has many features that appeal to tech-savvy borrowers. It’s contactless and simple and can be done via mobile phone which is very appealing to these would-be buyers.
There is some evidence that the novel coronavirus created an inflection point in which the desire for more living space and the enticement of lower interest rates moved many millennials into the housing market. The absence of student loans could provide further impetus to this movement.
In 2019, Rocket closed $145 billion of mortgages, and they exceeded that number in the first three quarters of 2020. However, that performance is not reflected in the RKT stock price. After leaping up to over $30 per share in September 2020, the stock has fallen back and is essentially flat since its initial public offering (IPO) in August. However, with an end to the pandemic in sight, the stock may be ready to run.
About Rocket Companies
Rocket Companies, Inc, a fintech holding company, provides mortgage lending, title and settlement services, and other financial technology services in the United States and Canada. It operates through two segments, Direct to Consumer and Partner Network. The company's solutions include Rocket Mortgage, a mortgage lender; Amrock that provides title insurance, property valuation, and settlement services; Rocket Homes, a home search platform and real estate agent referral network, which offers technology-enabled services to support the home buying and selling experience; and Rocket Loans, an online-based personal loans business.
Read More - Current Price
- $11.82
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 6 Hold Ratings, 6 Sell Ratings.
- Consensus Price Target
- $13.92 (17.7% Upside)
#2 - KB Home (NYSE:KBH)
Many economists are drawing the conclusion that student loan debt forgiveness will disproportionately benefit higher income earners. If that’s true, then those buyers may want their first home to be a new construction. There is evidence that this is happening regardless of debt forgiveness. And that’s why KB Home (NYSE:KBH) is another stock we’ve put on our list.
KB Homes targets the first-time buyer with affordable, entry-level homes. But more than that, the company is also committed to putting solar panels on its new homes. And according to Deloitte, two-thirds of millennials are interested in having solar panels on their homes. This fits in with an overall trend that millennials have towards homes that are smart, sustainable, and energy efficient.
Keep in mind that the home building sector is currently being affected by supply chain disruption as well as a higher cost for building materials. That could be one reason that the consensus among analysts is that the stock is slightly overpriced. And the Relative Strength Indicator (RSI) for KBH is showing that the stock may be approaching an overbought level.
However, KB Home reports earnings in late March which may represent a buying opportunity.
About KB Home
KB Home operates as a homebuilding company in the United States. It operates through four segments: West Coast, Southwest, Central, and Southeast. It builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers.
Read More - Current Price
- $65.86
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 6 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $79.17 (20.2% Upside)
#3 - Home Depot (NYSE:HD)
The Home Depot (NYSE:HD) was one of the biggest pandemic winners as millions of Americans used their extra time to spruce up their homes. It’s logical to expect that a surge in new home buying would be beneficial to a company that will provide new homeowners with the material they need to paint rooms, landscape their yard, and more.
One of the reasons for Home Depot’s success is that it has successfully pivoted to an omnichannel model. The company was already experiencing growth in its e-commerce channel prior to the pandemic and that set the company up for success during the pandemic. This included the ability to provide contactless delivery for its consumers. Those are trends that are going to continue long after the pandemic ends.
Of course the strength of the economic recovery will impact the company’s 2021 outlook. Investors will want to listen to what management has to say on the earnings call later this month. But as a long-term stock that offers both growth and value, HD stock is a logical buy.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $392.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $426.00 (8.5% Upside)
#4 - Shopify (NYSE:SHOP)
Turning our attention away from the housing market brings me to Shopify (NYSE:SHOP). It’s no surprise that the millennial and Gen-Z generations are more interested in being entrepreneurs, even if it’s only as a side hustle. If the analysts are to be believed, this is a trend that will accelerate should they be free from the burden of student debt.
And when they’re looking to set up their online storefront, Shopify is a logical candidate. Shopify is one of the software as a service (SaaS) stocks that is perfectly positioned for a generation that not only embraces e-commerce but does so on their mobile phones.
Analysts are cooling on the stock a bit, it’s now a consensus hold and the price target suggests some downside. However SHOP is the leading, and some might say only, e-commerce alternative to Amazon (NASDAQ:AMZN). And for businesses that are looking to get started, Shopify is the lower cost alternative as well.
About Shopify
Shopify Inc, a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America. The company's platform enables merchants to displays, manages, markets, and sells its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces; and enables to manage products and inventory, process orders and payments, fulfill and ship orders, new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing.
Read More - Current Price
- $108.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $99.03 (9.1% Downside)
#5 - Etsy (NASDAQ:ETSY)
Prior to the pandemic, Etsy (NASDAQ:ETSY) may have been included on a list of stocks to sell. Not anymore. As it turns out, Etsy has been a pandemic winner. ETSY stock is up 347% in the trailing twelve-month period.
The company has recently presented its five-year strategic plan, called “Right to Win” which focuses on what Etsy feel are its four core elements: personalized search and discovery, human connections, a strong and trusted brand, and a marketplace with a wide variety of vintage and handcrafted items.
And the millennial and Gen-Z are not only the buyers of these items; they’re also increasingly the creators.
ETSY stock is in one of those positions where the consensus of analysts say the stock is a buy but the overall price target is lower. However, recent price targets are significantly higher. Investors will want to pay close attention to the company’s earnings report which is scheduled for late February.
About Etsy
Etsy, Inc, together with its subsidiaries, operates two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com that connects artisans and entrepreneurs with various consumers. The company also offers Reverb, a musical instrument marketplace; Depop, a fashion resale marketplace; and Elo7, a Brazil-based marketplace for handmade and unique items.
Read More - Current Price
- $56.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 13 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $63.17 (11.2% Upside)
#6 - Kimberly Clark (NYSE:KMB)
The Covid-19 pandemic may not have sparked the baby boom that was expected, but that may be coming. If borrowers are free of their student loans, they are likely to feel more comfortable starting a family. And one of the stocks that would benefit from a baby boom would be the consumer products maker Kimberly Clark (NYSE:KMB).
Perhaps best known as the parent company for brands such as Huggies and GoodNites, the company also makes a variety of products that would be in high demand in a home with babies and young children.
KMB stock has not been a strong performer during the pandemic. However the stock is up 19% in the last three years and pays a dividend that currently has a yield of 3.24%. In fact, the company is a Dividend Aristocrat having just increased its dividend for the 49th consecutive year.
About Kimberly-Clark
Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care and consumer tissue products in the United States. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional. The company's Personal Care segment offers disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, reusable underwear, and other related products under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Sweety, Kotex, U by Kotex, Intimus, Thinx, Poise, Depend, Plenitud, Softex, and other brand names.
Read More - Current Price
- $131.32
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $149.93 (14.2% Upside)
#7 - Visa (NYSE:V)
The last stock to consider as one to benefit from student loan forgiveness may seem like an odd choice. But there is some reason behind my selection of Visa (NYSE:V). In a November 2020 article in Forbes, Ron Shevlin made a compelling argument that first, credit card usage is far from dead. And second, as the economy improves, the millennial generation may be more likely to turn to credit cards. In addition to the economic recovery (and an absence of other debt may be considered an economic recovery), Shevlin points out the rewards programs and the prevalence of “credit builder” cards.
While I believe that initially, recipients of student loan forgiveness may use the money they spent on loan payments to pay down other credit cards. But if history teaches us anything it’s that credit card debt is not likely to go away. And if Visa embraces cryptocurrency as is expected, that will be another catalyst for V stock.
About Visa
Visa Inc operates as a payment technology company in the United States and internationally. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. It also offers credit, debit, and prepaid card products; tap to pay, tokenization, and click to pay services; Visa Direct, a solution that facilitates the delivery of funds to eligible cards, deposit accounts, and digital wallets; Visa B2B Connect, a multilateral business-to-business cross-border payments network; Visa Cross-Border Solution, a cross-border consumer payments solution; and Visa DPS that provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services.
Read More - Current Price
- $317.71
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 25 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $328.41 (3.4% Upside)
Although it’s unclear what the exact amount of any student loan forgiveness plan will be, it has become a question of when and how. President Biden has expressed a desire to have any form of student loan forgiveness to be a law that is passed by both houses of Congress. However, it’s possible that President Biden may act via executive order as has been his proclivity in the first weeks of his presidency.
And when these borrowers receive relief, we can only hope that the long-term effects will be at least partially blunted by a stimulus to the economy as these individuals put this money to work.
Right now, this is an area that’s not drawing much attention. The intention of this presentation is to turn your attention to some sectors and stocks that are worth keeping your eye on.
You may have other stocks you like better than the ones in this presentation. As always, you should do your own due diligence and invest accordingly.
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