2 Stocks to Consider on the Next Pullback in Equities

The market on Tuesday continued its remarkable rise off its Covid-19 lows, with the S&P 500 tacking on nearly 3% to last week's 12% rally. There was some optimism that the coronavirus outbreak might be on its way to being contained as the Centers for Disease Control indicated the peak death toll in the U.S. would occur last Friday. And, indeed, the nationwide death toll did drop by one-quarter from Friday to Monday. However, it then spiked by more than 800 deaths on Tuesday to an all-time record. Importantly, there is more talk about restarting the economy, which has been welcomed by investors. The administration has formed a task force around this effort. New York has put together a coalition of six northeastern states to coordinate their reopening efforts and the three West Coast states have done the same. In addition, early stimulus funds are starting to reach the general population. The first of tens of millions of $1,200 checks from the Treasury started to be deposited in Americans' bank accounts over the weekend, which is a key element of the $2 trillion stimulus legislation. More than 16 million folks have filed unemployment claims over the past three weeks. They will be entitled to $600 a week for up to four months from the federal government on top of their regular state unemployment checks. Anyone making less than $20 an hour will be paid more for not working than for being employed through most of the summer. As I have written, I think that is a significant moral hazard in these payments, but it will get money to people so they can pay their bills and buy the groceries. I think the recent rally, as seen in the SPDR S&P 500 ETF , is starting to feel overdone. We are far from out of the woods as far as containing the virus and restarting the national economy, although it is nice to see progress on both fronts. On the next pullback in equities, here are two names I probably will add some exposure to via covered calls. All those stimulus and unemployment checks should give a name such as Enova International a nice reprieve compared to what might have been thought before the stimulus package passed. The online financial services company offers short-term consumer loans, line of credit accounts and installment loans to consumers and small business as well as analytic services to other lenders. These are all segments targeted by the huge stimulus package and this name should be a big beneficiary from the stabilization those funds will provide as well as any eventual economic restart. Even with the stock's recent rise, the shares are still down half from what they were before the Covid-19 outbreak. LGI Homes is another stock that has seen a similar pattern over the past couple months. The homebuilder was off to another stellar year before this coronavirus blindsided the global economy. LGI Homes saw closings rise 54% in February from a year ago. The company's homebuilding footprint spans mostly the South and Southwest, including its home state of Texas. With the exception of Georgia and Louisiana, this part of the country has seen much lower impacts as far as death toll and confirmed Covid-19 cases than the rest of the nation. These states should be among the first to gain traction in restarting their economies. That and lower mortgage rates should help buoy a name such as LGI Homes.

2 Stocks to Consider on the Next Pullback in Equities

Enova International and LGI Homes both should benefit once the economy begins to get back in gear.

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