With countries increasing the production and distribution of Covid-19 vaccines, the number of new Covid-19 cases has fallen substantially in many parts of the world. Meanwhile the US government just passed a $1.9trn stimulus package that could help the American economy reach full employment faster.
Given the stimulus and falling Covid-19 new cases, many economists expect substantial economic growth. As a result, I’d buy the stocks of three companies at their current share price: JPMorgan Chase (NYSE:JPM), Berkshire Hathaway (NYSE: BRK.B), and Visa (NYSE: V).
A leading US bank
If the US economy strengthens, I reckon leading US bank JPMorgan Chase could benefit from more loan growth and potentially fewer loan losses. Although interest rates are low right now, I think JPMorgan Chase will likely benefit from interest rate normalisation in the future as the economy improves too. Given JPMorgan Chase’s strength, it’s a stock I’d buy at the current price.
If JPMorgan Chase makes more money, the potential for capital returns through dividends and share repurchases likely increases. Presently, the bank pays a quarterly dividend of $0.90 per share, which is a yield of around 2.3% at current prices. With more earnings, JPMorgan Chase could raise its dividend in the future.
JPMorgan Chase could have potential downside if the bank doesn’t make good loans or if its earnings don’t meet expectations. Many financial bank shares have historically declined during recessions and financial crises, and JPMorgan Chase could be one of them.
Warren Buffett’s company
Another stock I’d buy at the current price as another economic recovery play is Warren Buffett’s Berkshire Hathaway. I reckon Berkshire Hathaway will benefit from the eventual interest rate normalisation through its ownership of leading insurer GEICO and from a recovering US economy through its ownership of railroads.
Lately, Berkshire Hathaway has repurchased a lot of stock. In 2020, for example, Berkshire Hathaway bought back $24.7bn and there could be more on the way. Buffett said in his annual letter, “Berkshire has repurchased more shares since year-end and is likely to further reduce its share count in the future”. Given Buffett’s past track record of buying stocks, I view his buybacks of Berkshire Hathaway is a positive sign for the stock in the future.
With that said, Berkshire Hathaway shares could decline if the economy doesn’t do well.
Visa benefits from the US stimulus package and a recovering global economy in multiple ways. With the $1,400 stimulus checks for US citizens, many people will likely spend that extra money through Visa credit cards and thus give Visa incremental sales. Given a substantial percentage of consumer spending is now digital, Visa can also benefit from the rise of e-commerce too. If the global economy strengthens, digital spending could increase and Visa will likely benefit through credit card transaction fees.
Although it has a wide moat given the network effects of having so many users and merchants that use or accept Visa, Visa could have potential downside from future fintech competitors. With a forward price-to-earnings ratio of nearly 31, I think Visa will need to continue to show strong results to do well.
Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and Visa and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares) and long January 2023 $200 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.