One of the least favorite federal agencies, the Internal Revenue Service (IRS) is not known for its friendly posture. Nevertheless, let’s give credit where it’s due. The IRS had the good sense to know that many Americans were hurting. Therefore, it decided to extend its tax filing deadline to May 17. If you’re a procrastinator, you’ll soon get your tax refund, which brings up the idea of best stocks to buy with it.
First, let me just say the obvious. A tax refund is really just a beautiful American euphemism for giving Uncle Sam an interest-free loan. But that’s the mentality that you find yourself in if you’re a worker bee: You wait for that one day of the year when you get a special treat. Instead, if you were in business for yourself, you could hustle for multiple special days to buy all the best stocks.
Still, working for a major corporation has its advantages, such as paid time off, health insurance and income stability, among many other benefits. Therefore, I can appreciate why many Americans eagerly wait for the “refund.” According to CNBC, the average refund size is a hefty $2,893. That amounts to $241 a month, money that you could have put to work through consistent contributions toward the best stocks to buy instead of loaning it to the federal government.
It’s just something to think about. Even if you don’t make the leap from a W2 employee to, say, a 1099 contractor, you should consult with your professional tax or financial advisor — which is not me, to be clear — to streamline your finances in the future. You want your money to benefit you, not anyone else and certainly not a giant bureaucracy.
Anyways, if you’re the average tax payer, you have roughly $3,000 to play with. And if you kept some of your stimulus checks (assuming you were eligible), you have even more funds at your disposal. Here then are seven best stocks to buy with your newfound riches.
Based on the volatile circumstances in the market, I’m leaning more on the cautious side. However, on this list of stocks to buy, you’ll find some speculative ideas if that’s more of your flavor.
- McDonald’s (NYSE:MCD)
- Archer Daniels Midland (NYSE:ADM)
- Dominion Energy (NYSE:D)
- Kratos Defense & Security Solutions (NASDAQ:KTOS)
- H&R Block (NYSE:HRB)
- Smith & Wesson Brands (NASDAQ:SWBI)
- Cinemark (NYSE:CNK)
Stocks to Buy: McDonald’s (MCD)
Unsurprisingly, one of the worst-hit sectors from the novel coronavirus outbreak was the restaurant industry. Specifically, the mom-and-pops that have far fewer resources suffered immeasurably, leading to organizations starting initiatives to encourage the public to support local small businesses. While noble, I must say that from a personal perspective, I’m not seeing much evidence of traction.
Every time I pass by a McDonald’s, I see the drive-thru packed to the hilt. Having visited McDonald’s pre-pandemic to check out the company’s rebranding campaign, I must say that its drive-thru lanes move very quickly. Still, it’s a bit alarming that American consumers would seemingly rather support big business than small.
Whatever. When it comes to seeking out the best stocks to buy, you can’t rely on sentiment. Instead, the hard facts speak for themselves. In its quarter ended March 31, 2021, McDonald’s generated revenue of $5.12 billion. That’s up 2% from the same quarter two years ago, and just under parity from three years ago.
This suggests the Golden Arches could be on the mend, which would be very good for MCD stock.
Archer Daniels Midland (ADM)
Arguably the least exciting name on this list of best stocks to buy, I wouldn’t ordinarily be so bullish on Archer Daniels Midland if indeed we were in a decidedly optimistic phase in the market. Right now, though, it seems the overriding mood is to deleverage from risk-on assets to risk-off plays. If so, I don’t think you could get any more risk-off in the equities space than ADM stock.
As a food-processing giant, Archer Daniels Midland represents one of the prime places to put your tax refund to work. Here’s the philosophy. Just prior to the pandemic, most Americans used their refund to pay down debt. Therefore, if you’re going to invest the money instead, you want to get into high-quality names with a high probability of upside movement.
Since we all have to eat, that right there makes ADM worth considering as one of the best stocks to buy as a long-term consideration.
But specific to our circumstances, Archer Daniels is putting up great numbers. In the first quarter of 2021, the company posted revenue of $18.9 billion, up 5% from Q4 2020.
Dominion Energy (D)
With the global markets turning shaky over recent sessions, the best stocks to buy are what many analysts consider the safest ones. Under this context, you could do a lot worse than Dominion Energy. A power and energy company — and not to be confused with that other company of the same name — Dominion Energy has an irreplaceable advantage: When people flip the switch, they expect the lights to turn on.
Indeed, bad stuff happens when the lights stay off for an extended period. Beyond that, we live in a technologically dependent world. We cannot live without power, and therefore, people will do anything to keep those lights on. It’s somewhat cynical, but it supports the case for D stock.
Another reason why Dominion is one of the best stocks to buy with your tax refund is that utilities tend to perform relatively well during a deflationary environment. I’d argue that’s exactly what we’re seeing. Our national gross domestic product (GDP) is back up to $22 trillion, yet our employment level is still down about 5%. Productivity up but worker base down translates to deflation.
Kratos Defense & Security Solutions (KTOS)
As a defense contractor, Kratos Defense & Security Solutions is a tricky beast. Ordinarily, you wouldn’t expect a left-leaning presidential administration to be supportive of an investment like KTOS stock. Certainly, the comparison to the very pro-military administration under former President Donald Trump isn’t favorable for Kratos. However, you’d have to be living under a rock not to notice multiple geopolitical rumblings.
First, you have the tense relationship between President Joe Biden and Russian President Vladimir Putin. Further, both confirmed and suspected Russian-backed cyberattacks put a dark cloud over U.S.-Russia relations, which may bolster military related names like KTOS stock.
Second, our continued rivalry with China, along with the ever-present threat of nuclear-armed North Korea demonstrates that we must direct resources into maintaining our military advantage. Specifically, Kratos’ specialty in advanced war machines such as drones might make it one of the best stocks to buy.
Nevertheless, KTOS is a stock you want to trickle your way into. Financially, Kratos’ revenue growth has started to sag. That said, if tensions heat up with our adversaries — and that looks to be the case — KTOS at current prices may be a viable discount.
H&R Block (HRB)
I’d be remiss not to mention H&R Block in an article about best stocks to buy with your tax refund. Now, time for a confession. Over the past two years or so, I’ve supported the bullish narrative of HRB stock, only to be disappointed. Finally, though, the tax-preparation company is rewarding its longsuffering shareholders.
On a year-to-date basis, HRB stock is up 59%. Better yet, momentum remains strong, with shares up nearly 15% over the trailing month. Part of the reason is a factor I’ve long discussed: the transition to the gig economy. Prior to the pandemic, many young folks wanted to live life on their terms. During the lockdowns, many more people got a taste of the gig worker’s culture.
As the New York Times pointed out, worker bees want to keep the benefits of telecommuting. Undoubtedly, some will make the plunge. But tax preparation for 1099 contractors is far different from W2s, which bolsters HRB.
Also, several investors got rich off cryptocurrencies in 2021. That, too, is a serious taxation concern, one that the IRS will prosecute with extreme prejudice. So, how’s H&R Block looking now?
Smith & Wesson Brands (SWBI)
Another difficult name to figure out among best stocks to buy with your tax refund is Smith & Wesson Brands. I include it because there’s a chance SWBI stock could fly higher from here due to a compelling mix of the unprecedented pandemic and political catalysts. Still, it’s a risky one, so don’t go too overboard.
Let’s start with some hard data. According to FBI background checks for firearm sales, the industry has sold just under 16 million guns between January through April. That’s on pace for yet another record-breaking year for gun sales. Still, April sales slipped 25% from March. Is that a sign that SWBI stock is in trouble?
It’s not the most encouraging statistic. But we should note that April sales historically tend to be weak relative to March. Further, while the pandemic sparked gun sales in 2020, this year, the Democrats could do the same in 2021.
After some ugly incidents following the 2020 election results, some fractures have opened within the Republican party. That sets the possibility that Democrats may retain power, which is fundamentally bad news for firearm advocates due to the threat of increased gun control.
But this could also spark panicked purchasing. Therefore, you should watch this space.
With Cinemark, I’ve saved the riskiest idea for last. While CNK has the comeback narrative to be among the best stocks to buy period, it could also fall flat on its face. Therefore, you only want to spare a tiny portion of your refund on this cineplex operator.
While so many industries suffered from the pandemic, companies like Cinemark were on the brink of absolute catastrophe. That’s because without people flowing into their movie theaters, there was really no way to generate any revenue. But now that several states are loosening their Covid-19 protocol, CNK stock pinged signs of life.
On a year-to-date basis, shares are up 28%. In the trailing month, momentum continues to be strong, up nearly 9%. But can the cineplex industry harness these gains into something sustainably substantive?
I think it comes down to whether people can remember what it was like to be normal and human again. Clearly, some cities are doing much better than others. But should a sense of decency and civility return, the pent-up demand for the big-screen experience could swing the needle favorably for CNK stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.