There's been an alarming rise in COVID-19 cases in recent weeks, due in large part to the delta variant. While worries over this strain of COVID-19 has created market volatility alongside the spike in infection rates, it's also created some potential buying opportunities in stocks.
The delta variant, also known as B.1.617.2, was first identified in India late last year, but has spread to over 85 countries. It now accounts for over 90% of known COVID-19 cases in the U.S., according to the Centers for Disease Control and Prevention (CDC).
The Delta variant is problematic as it is more infectious and more effective at evading vaccines. Even in vaccinated individuals, the variant is highly contagious, which allows it to spread quite easily.
While most experts don't expect a repeat of the 2020 lockdowns, the delta variant could affect the economy and the equities market – especially considering several of the best stocks to buy in 2021 are directly tied to the recovery.
Individuals may spend more time at home and away from offices and social gatherings, which could slow the recovery in the job market and the amount consumers spend. This, in turn, could impact certain sectors, including consumer discretionary and consumer staples. Also, the global supply chain could become even more strained, which could affect a variety of industries, like semiconductors and automakers.
Investors should consider these six delta variant stocks that could thrive if the spread of the strain intensifies. We looked at stocks tracked by the Stock News POWR Ratings System, and focused on only those that received a Buy or Strong Buy rating from the pros based on the company's current financial situation and future prospects. We then homed in on companies best suited for another prolonged COVID flare-up. Check them out.
Disclaimer
Data is as of Aug. 11. POWR Ratings work on an A-B-C-D-F system. Stocks are listed in order of lowest to highest overall rating, and then alphabetically.
Adobe
- Market value: $298.2 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.35
Cloud company Adobe (ADBE, $626.03) provides content creation, document management and digital marketing and advertising software and services to creative professionals.
With more people working at home during the pandemic, the need for ADBE's offerings has skyrocketed. As cases soar and workers remain home for the time being, this demand for its cloud products – Creative Cloud, Document Cloud and Adobe Experience Cloud – should continue, which should drive top-line growth.
The company is also expected to benefit from growth in emerging markets, online video creation demand and improving average revenue per user.
ADBE has an overall grade of B, which translates into a Buy rating in our POWR Ratings system.
The company has a Stability grade of B, which means it has a history of consistent growth. For instance, earnings have grown 52.1% over the past year, an average of 38.4% over the past three years and an average of 45.4% over the past five years.
As far as delta variant stocks go, this one has a rock-solid balance sheet, as evidenced by its Quality grade of A. The company's current ratio of 1.3 is reassuring as it means that it has more than enough liquidity to handle any short-term obligations. Plus, its debt-to-equity ratio of 0.3 is meager.
Adobe is ranked #21 in the Software – Application industry.
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Alphabet
- Market value: $1.8 trillion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.35
During the pandemic lockdown last year, Alphabet (GOOGL, $2,725.58) experienced an uptick in traffic,. This likely helped the Google parent generate more than 81% of its revenue from ads in the second quarter.
Additionally, the company is creating substantial revenue growth in its cloud segment. The cloud took center stage last year after the pandemic drove the need for more companies to go digital. GOOGL's expanding data centers should continue to bolster its presence in the cloud space.
The firm also sees revenue from sales of apps and content on Google Play and YouTube, cloud service fees and other licensing revenue. This is in addition to sales of hardware such as Chromebooks, the Pixel smartphone and smart-home products such as Nest and Google Home.
All these segments support the work- and learn-from-home trends that were so prevalent during the height of the pandemic. As more people avoid crowds due to the delta variant, they should be back in play again.
GOOGL has an overall grade of B, which is a Buy rating in our POWR Ratings system.
The company has a Sentiment grade of A. Of the 46 analysts covering the stock, all but two rate it a Buy or Strong Buy. In other words, this is one of the best delta variant stocks to buy, according to the pros.
GOOGL also has a Quality grade of B, which means it has solid fundamentals. As of the most recent quarter, the company had $135.9 billion in cash compared with only $2 billion in short-term debt. GOOGL is also highly profitable, with a net profit margin of 28.7%.
The company is ranked #3 in the Internet industry.
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Danaher
- Market value: $221.7 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.42
Another one of the delta variant stocks on this list is Danaher (DHR, $310.57). In 1984, DHR founders transformed a real estate organization into an industrial-centered manufacturing company. It now focuses primarily on manufacturing scientific instruments and consumables, including life sciences, diagnostics and environmental and applied solutions. Demand for its products has increased during the pandemic.
The company has exposure to COVID-19 on two fronts. First, DHR's diagnostics unit includes Cepheid, which is a leader in molecular testing. Last year, Cepheid launched a four-in-one test for COVID-19, flu A, flu B and respiratory syncytial virus (RSV). As you can imagine, this test has come in handy with the recent rise in cases.
Another DHR diagnostics offering, Beckman Coulter, has a test to detect COVID-19 antibodies, plus another one to detect a severe inflammatory response in COVID-19 patients.
As a result, DHR's life sciences unit is seeing robust growth on account of demand for COVID-19 testing, and total sales are expected to increase by 24.5% year-over-year to $27.8 billion in 2021.
Danaher has an overall grade of B and a Buy rating in our POWR Ratings system. DHR has a Growth grade of B, which makes sense as the company has grown earnings an average of 25.8% over the past three years and 86.9% just in the last year. Plus, analysts forecast earnings to surge 40.7% for the year.
The company also has a Sentiment grade of A, with 22 out of 25 covering analysts rating the stock a Buy or Strong Buy.
DHR is ranked #44 in the Medical – Devices & Equipment industry.
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Microsoft
- Market value: $2.2 trillion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.29
Microsoft (MSFT, $286.95) is another company that has its hands in the cloud market. Azure is one of its largest and fastest-growing divisions and a leading player in the cloud space. With companies hesitant to bring back workers into the office, MSFT's cloud offerings should play a significant role in its continued growth.
In fact, in the most recent quarter, Microsoft saw robust adoption of its Azure cloud offerings, which helped drive its top line. MSFT finished fiscal 2021 – which ended on June 30 – with commercial cloud revenues of $19.5 billion, up 36% year-over-year.
The company also dominates the PC software market, with Windows holding a 68.5% share of the desktop, tablet and console operating system market. Plus, its Office suite still dominates, but it's now run on a software-as-a-service (SaaS) model, which makes it perfect in the remote working and learning environment. MSFT has also seen robust adoption of its Teams app, which helps facilitate work with remote employees.
The company has an overall grade of B and a Buy rating in our POWR Ratings system. MSFT has a Sentiment Grade of A, which means that among delta variant stocks, this one is very much liked by the "smart crowd." Of the 39 analysts tracking MSFT, 37 agree that it is a Buy.
Microsoft also has a Quality grade of B due to a strong balance sheet. MSFT has both a current ratio and a quick ratio above 2, which means that it has more than enough liquidity to handle any short-term obligations. It also has a low debt-to-equity ratio of 0.5.
MSFT is ranked #12 in the Software – Application industry.
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Johnson & Johnson
- Market value: $457.5 billion
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.48
Johnson & Johnson (JNJ, $173.80) is a healthcare company that is seeing strong sales as a result of the pandemic. As one of three companies domestically that is manufacturing a COVID-19 vaccine, this pharmaceutical company should see additional growth as the U.S. government urges more people to get vaccinated. Its single-shot COVID-19 vaccine, which has been approved for emergency use, generated sales of $164 million in the second quarter, compared with $100 million in the first quarter.
This helped earnings increase 48.5% from the year-ago period and sales to rise 27.1% year-over-year. Management revised its full-year guidance for sales to include a $2.5 billion contribution from its COVID-19 vaccine. The company expects more than half of that figure to occur in the fourth quarter. JNJ is also benefiting from a recovery in its medical devices unit, where sales surged nearly 74% over the three-month period.
One other thing that JNJ has going for it is that several of its key treatments are specialty drugs that carry strong pricing power and lower regulatory hurdles for approval.
JNJ is just one of two delta variant stocks on this list that has an overall grade of A and a Strong Buy rating in our POWR Ratings system. The company has a Growth grade of B, which isn't a surprise based on its recent second-quarter figures.
Even more impressive is that earnings are up an average of 133.3% over the past three years and its EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to grow 18.4% over the next year.
JNJ also has a Value grade of B, which means you can get the stock at an attractive price. Its forward price-to-earnings (P/E) ratio is only 16.8. Plus, it has an implied upside of 7.9% based on the average analyst price target of $187.47.
Johnson & Johnson is ranked #1 in the Medical – Pharmaceuticals industry.
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Pfizer
- Market value: $259.2 billion
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.79
Pfizer (PFE, $46.31) is another healthcare company that should benefit as COVID-19 cases surge. The company recently reported a strong quarter, where adjusted earnings per share rose 73% year-over-year and sales spiked 92%. In fact, a majority of PFE's sales came from its COVID-19 vaccine, which is being developed alongside BioNTech (BNTX). The vaccine contributed $7.8 billion in global sales during the quarter.
The vaccine, which was developed in record time, is now approved for emergency use in several countries. PFE and BNTX have already delivered roughly a billion doses of the vaccine. Management expects to manufacture up to 3 billion doses by the end of the year.
The two companies are also evaluating the vaccine in younger patients and a booster dose to combat the delta variant.
PFE has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. The company has a Growth grade of B, which isn't surprising based on its most recent growth figures. Sales are expected to rise 59.7% year-over-year in the current quarter, while earnings are forecast to grow 23%.
Pfizer is also one of the cheapest delta variant stocks on this list, with a Value grade of B due to its low valuation. The company has a forward P/E of only 13.7, and its price-to-book ratio is also below the industry average.
The company is ranked #6 in the Medical – Pharmaceuticals industry.
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