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From Apple to Walmart: Stock Market Winners and Losers as Student Loan Payments Restart

Barchart - Mon Oct 2, 2023

Student loan repayments are beginning again in October, after being on hold since March 2020. Almost all stimulus packages announced during the COVID-19 pandemic have since wound down, and even the Fed – which slashed rates to zero in March 2020 – has since hiked its benchmark rate to the highest in over two decades.

The student loan moratorium was one key stimulus that was extended multiple times - first by Donald Trump, and then by his successor, President Joe Biden. The latter’s bid to forgive student loans was struck down by the Supreme Court - and even as the Biden administration is mulling alternative relief mechanisms for borrowers, for now, the repayments are set to begin. That's estimated to leave a $100 billion hole in the pockets of borrowers in the coming year, according to a Wall Street Journal report.

Here are the stocks that could emerge as winners and losers as student loan repayments begin this month.

Which Stocks Could Benefit as Student Loan Repayments Begin?

Discount retailers and student loan refinance companies are among the stocks that look set to win as student loan repayments begin.

1. SoFi Could Benefit as Student Loan Refinancing Gains Traction

SoFi (SOFI) operates a student loan refinancing business, and its fortunes nosedived as the student loan moratorium meant that borrowers no longer had any pressing need to refinance their loans. Incidentally, SoFi sued the Biden administration earlier this year over the repayment pause. It has a strong lead in the student loan refinancing business, and could be among the biggest beneficiaries as student loan repayments begin.

While SoFi stock is outperforming the Nasdaq Composite ($NASX) by a wide margin in 2023, it has come off its recent highs, and I believe it makes sense to buy the dip in this quality fintech company.

2. Discount Retailers Like Walmart and Costco

Amid stubbornly high inflation and a broader macroeconomic slowdown, many consumers have been pivoting to discount retailers like Walmart (WMT) - which I noted previously is among the recession-proof stocks.

According to Jefferies, Walmart, TJX Companies (TJX), and Costco (COST), are among the retailers that budget-conscious borrowers might prefer if the resumption of student loan repayments puts pressure on their finances.  

Costco also reported stellar fiscal Q4 2023 earnings last week, and multiple Wall Street analysts raised their target prices on the stock. It currently has a Strong Buy rating on average, and of the 26 analysts covering the stock, 17 rate it as a Strong Buy while 3 consider it a moderate Buy. The remaining 6 analysts rate it as a Hold.

Student Loan Repayments Could be Negative for Restaurant Stocks

Meanwhile, the resumption of student loan repayments could be negative for companies in industries like consumer discretionary and restaurants.

A BTIG survey showed that the resumption of student loans will have a disproportionate impact on higher-income borrowers, and listed Starbucks (SBUX), Shake Shack (SHAK), and Chipotle Mexican Grill (CMG) as the companies with the highest exposure to these borrowers.

BTIG analyst Peter Saleh said, “While we don’t expect these consumers to significantly change their habits, we do believe that some could manage their check, trade down within the menu, or modestly reduce their visit frequency.”

Consumer Discretionary Stocks

Companies like Apple (AAPL) might also be impacted if student loan borrowers cut back on their discretionary spending. Notably, the December quarter is seasonally strong for Apple, as the launch of the new iPhone helps propel sales during the holiday season. This year, that quarter will coincide with the resumption of student loan payments, which might play a dampener.

Other names in the consumer discretionary space, like Amazon(AMZN), as well as automakers like Ford (F), might also be negatively impacted if consumers cut down on discretionary spending. Notably, interest rates are already at their highest level in years, and the resumption of student loan repayments will further lower the loan affordability for some borrowers.

Robinhood Might Also Be Impacted as Student Loan Repayments Resume

Discount brokerage Robinhood (HOOD) might also be impacted as student loan repayments resume. The savings rate might dip further as the moratorium on student loans is lifted, which could mean that some borrowers have less money to invest through platforms like Robinhood.

Robinhood’s active user count has already plummeted from its 2021 highs as the meme stock mania faded. The company is, however, looking at alternative products - like retirement solutions - to revive its sagging fortunes. It has also cut down on costs, and in Q2 2023, it posted its first-ever quarterly GAAP profit as a public company.

However, if the younger cohort on Robinhood has fewer disposable dollars to trade in the various instruments on the platform, it could mean lower trading volumes and, by extension, lower revenues for Robinhood.

All of that said, the resumption of student loan repayments is yet another variable that investors should watch out for this October. U.S. stocks continued their losing streak in September – which, yet again, held on to its reputation as the worst month for stocks.

The Nasdaq Composite and the S&P 500 Index ($SPX) respectively lost 5.8% and 4.9% in September, and both had their worst month of the year. Markets will now eye the upcoming slate of quarterly earnings reports and - among other factors - investors should look out for color on whether companies are seeing any visible impact on consumer behavior after the resumption of student loan repayments.

On the date of publication, Mohit Oberoi had a position in: SOFI , AAPL , AMZN , F . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.