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Stocks were at their lows for the year back in March, when COVID-19 was spreading rapidly throughout the world for the first time.
It was a time of fear and panic in the financial markets as stocks fell about 35% from their all-time highs in February with little information to go on for the novel virus.
But then, the U.S. federal government went into its economic playbook and passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
This provided over $2 trillion in economic support to American workers, families, and small businesses.
In general, most of the stock market has reacted favorably.
Since the CARES Act was passed on March 27, the S&P 500 is up 30% to new all-time highs.
Now, Congress is on the verge of passing another trillion-dollar stimulus bill that includes more $1,200 checks for single Americans and $2,400 for married couples. That could launch stocks even higher this fall.
While they haven't reached an agreement yet, it's likely going to happen soon because the election is coming up and both sides want to say they had a hand in getting another $1.8 trillion or so into the hands of Americans.
Of course, some stocks (like FANMAG) popped more than 30% over that time frame, while others (like airlines and cruise lines) haven't recovered to the highs they experienced before COVID-19 shocked the world.
So today, we're going to reveal some of the best stimulus stocks to buy now (and avoid) before a second major round of stimulus hits the markets.
Some stocks will continue to benefit, but others are dead in the water even if a bill passes.
Let's start with the stocks to avoid first...
Stimulus Stocks to Avoid
Last time Americans received $1,200 stimulus checks from the government, brokerages around the nation experienced an influx of deposits for the same amount.
People who didn't need the money right away invested it.
According to Robinhood Markets Inc.'s COO Gretchen Howard, there was a 17-fold increase in deposits at Robinhood in March compared to Q4 2019.
And there was a record spike in deposits for $1,200 and $2,400 - the exact amount many individuals and couples received from the government.
Much of the trading activity consisted of buying and some of the most popular stocks were actually the airlines and cruise operators.
These companies were battered during the pandemic, so it's clear retail investors were trying to buy the dip.
If you take a look at Robinhood's "100 Most Popular" stocks list, you'll see companies like American Airlines Group Inc. (NYSE: AAL), Delta Air Lines Inc. (NYSE: DAL), Carnival Corp. (NYSE: CCL), Boeing Co. (NYSE: BA), United Airlines Holdings Inc. (NYSE: UAL), Royal Caribbean Cruises Ltd. (NYSE: RCL), Southwest Airlines Co. (NYSE: LUV), Spirit Airlines Inc. (NYSE: SAVE), and JetBlue Airways Corp. (NYSE: JBLU).
Well, I'm here to tell you to avoid these stocks at all costs.
If you check the stock charts of every one of these companies, you'll see that none of them are back to the highs they made before COVID-19 swept the market.
And for good reason...
People aren't traveling as much or taking cruises!
There's a reason why Warren Buffett sold out of the airlines back in May.
Even though these companies may be the ones getting the most in economic relief from the government, at the end of the day, sales and profits are what matter most.
The free government money can only go so far. In order for cruise companies and airline stocks to get to new all-time highs, they need the world to feel comfortable traveling again.
Essentially, they need a COVID-19 vaccine that can be widely distributed to the general population.
And since that doesn't appear to be close yet, continue to avoid these stocks - no matter how much stimulus they get from the government.
Here's where to put your money instead...
Stimulus Stocks to Buy Now
Stocks weren't the only thing people were putting their stimulus money into in hopes it would grow.
They were also legally gambling it on sports.
Like Robinhood, DraftKings Inc. (NASDAQ: DKNG) experienced a massive influx of $1,200 and $2,400 deposits.
Since professional sports were allowed to resume here in the United States and abroad, DraftKings has been on fire.
Online sports betting has exploded this year with new regulations in many states allowing sports betting and the inability for fans to go to games.
DKNG was trading for $12.69 the day the last stimulus deal was announced.
Today, it sits at $43.40, for a juicy return of 242% for investors.
The best part is, the stock is actually on sale now, down from its all-time high of $64.19 earlier this month.
We think the stock could be worth $100 or more over the next 24 months thanks to the current relaxed regulations combined with the continued expansion of states allowing sports gambling.
It's already legal to gamble on sports in 19 states. Virginia, North Carolina, Tennessee, and Washington state recently passed new bills that would allow it - so that brings the total to 23.
And nine others, including Vermont, Massachusetts, Maryland, Ohio, Louisiana, Kansas, Nebraska, South Dakota, and Hawaii, have it on their 2020 voting ballots.
By the end of the 2020 elections, we could have as many as 32 legal sports gambling states.
We think that it's only a matter of when not if it's legal in all 50 states.
Speaking of legalization in all 50 states, cannabis stocks have also been attractive since the March stimulus.
In fact, the AdvisorShares Pure Cannabis ETF (NYSEARCA: YOLO) has doubled since March.
We here at Money Morning are long-term bullish on cannabis for some of the same reasons as sports gambling.
First of all, it's already recreationally legal in 11 states, medically legal in 33, and five more states are voting on it in 2020 (including New Jersey, Arizona, Mississippi, South Dakota, and Montana).
That means 38 states could have legal weed by next year.
As more people are quarantining at home, they're turning to marijuana to pass the time. Sales are up across the board.
So, if you're interested in learning more about how to profit from stimulus stocks in 2020, check out our guide below.
BUY THIS, NOT THAT: The Best (and Worst) Stocks in America
Money Morning's brand-new chief investment strategist is going live in his first-ever segment of BUY THIS, NOT THAT.
In 30 minutes or less, Shah Gilani is going to run through all 50+ stocks you should know about - for better or for worse.
Shah is not holding back; prices, tickers, and company names will be coming your way fast.
Be ready to take notes! Watch now...