Despite Congress’ failure to make the move to a $15 minimum wage, it’s likely to happen sometime during the next few years. That inevitability got me thinking about those businesses that would benefit from the boost. Of course, this being InvestorPlace, that led to research which stocks to buy to play that development.
To be sure, the wage hike will not happen immediately. That’s despite the most recent push by AOC and other Democrats to pass Bernie Sanders’ amendment include the $15 threshold as part of the Senate Covid relief package.
The growing ranks of major corporations and their trade groups backing the legislative move are evidence of things to come. They’ll be the winners, while small businesses will end up on the short end, as Brad Close, president of the National Federation of Independent Business, opined last month.
These seven stocks are already in prime position for when that happens:
- Amazon (NASDAQ:AMZN)
- Target (NYSE:TGT)
- iRobot (NASDAQ:IRBT)
- Walmart (NYSE:WMT)
- Robo Global Robotics and Automation Index ETF (NYSEARCA:ROBO)
- Schneider Electric (OTCMKTS:SBGSY)
- Costco (NASDAQ:COST)
Stocks to Buy: Amazon (AMZN)
Amazon stands to benefit from a $15 minimum wage as much as any company. Perhaps more so. There are two big reasons why.
First of all, Amazon already pays its workers $15 per hour. Back in October of 2018, the e-commerce leader decided to raise the minimum wage it pays U.S. employees to $15. The move was met with both applause and skepticism.
On the one hand, Amazon long faced scrutiny for its labor practices. Skeptics of the company claimed Amazon could improve by increasing the wages it pays laborers. So clearly the effort was part of a PR push to soften the public image of the sometimes-maligned retail giant.
At the time, Amazon was also facing a tight labor market and the wage hike was seen as a way to attract labor in the run-up to the 2018 holiday season.
That said, Amazon immediately began to lobby Congress to increase the minimum wage when it raised its own. These factors don’t speak to a company choosing to raise its wages out of any virtuous benevolence.
But the thrust here is that Amazon is already paying $15 minimum wage. It doesn’t feel any pain if and when such a law does pass. In fact, it benefits.
That’s what brings me to my second point. Amazon is a giant company. Small and medium companies will likely feel the pinch most when wages rise. Many will be forced out of business. This only compounds Amazon’s advantage, and adds to the value for AMZN stock investors.
Target is quite a strong retailer on its own. Even if there is no increase to the minimum wage, it looks like a reasonable retail stock for investors.
Indeed, TGT stock has risen 65% over the past year. Target recently released its earnings report, marking its fourth-straight sales and earnings beat. Yet, shares have slumped in the past week. To me, this looks like a buy-the-dip situation in a great retail stock.
But back to the reason that Target makes sense as AOC and Democrats push for a $15 minimum wage. The logic is very similar to that which I used for Amazon: that is, Target is already doing so. Back in June of 2020, Target raised its starting wage to $15.
So, Target is already in a strong position. It has set itself up as a leader in the push for higher minimum wages. Target looks like a thought leader. And the company is a retail giant which enjoys scale advantages other, smaller retailers simply cannot replicate.
Smaller retailers would be forced out of business by a $15 minimum wage. That, in and of itself would make Target stronger. Retailers that survive would then be on equal footing with Target in terms of labor costs. That’s why it makes a lot of sense to invest in Target now.
The next stock on this list, iRobot, is a bit of a departure from the previous two. Let me pose a hypothetical question. When a $15 minimum wage finally occurs, who will be among the first groups of employees replaced? I’d venture to guess that one answer is custodians, janitors, and other staff members who clean.
That’s where the Roomba vacuum maker stands to benefit. Assuming that one of iRobot’s vacuums can replace the work done by a human, companies have little reason not to choose the vacuum. It is simply much, much cheaper. At $15 an hour, the impetus for any company with cleaning staff to consider Roomba vacuums becomes much stronger.
iRobot also makes mops as well. It is not plausible to imagine that a robot vacuum and robot mop alone can entirely replace a cleaning staff. However, it makes sense that they could replace a significant number of a given cleaning crew. Perhaps one in five, or some other number of workers.
The point is that iRobot would receive a boost by a $15 minimum wage. Although IRBT stock isn’t particularly lauded by Wall Street, it does possess positive characteristics. I appreciate that the company is value creating in that its ROIC is 23.63%, which exceeds its capital costs that average 9.35%.
Back to retail. It is going to be one of, if not the most-affected sector due to a $15 minimum wage. I believe Walmart is a solid stock on its own merits. So before even beginning to talk about minimum wage, I’d consider WMT stock.
Walmart battles Amazon for retail dominance. Amazon dominates e-commerce and online retail channels, while Walmart is the big-box leader. Walmart is actually the #2 e-commerce retailer.
Suffice it to say that Walmart is an amazing company. There’s a lot to like about it whether you look at profitability metrics, financial strength, e-commerce growth, or big-box dominance. And, if we continue with the Amazon comparison, Walmart has a leg up in that it has a dividend. Amazon does not.
Walmart hasn’t done what Amazon and Target have. It doesn’t pay workers $15 per hour. However, it recently increased wages for retail workers in specific markets. Walmart said the majority of its stocking and digital workers will be paid between $15 and $19 per hour in more competitive markets on the East and West coasts.
The company now pays its employees an average of $15.25 an hour. Of course that means that some receive less than $15. However, Walmart is now in the same position of having a distinct competitive advantage when a $15 minimum wage is passed. That seems to be a question of if, and not when.
Robo Global Robotics and Automation Index ETF (ROBO)
Another way to play the impending $15 minimum wage increase is to simply buy an ETF that stands to benefit from the shift. That’s why it makes sense to consider the Robo Global Robotics and Automation Index ETF.
The exchange-traded fund ROBO stock is heavily weighted toward industrials and technology which comprise 83.39% of its holdings. The obvious logic here is that it is safer to be diversified across the spectrum of robotics and automations stocks rather than to key in on any given equity.
ETFs are a great tool for exposure to industries that are perhaps out of a given investors comfort zone. The fund’s five-year performance is 23.91%. The 86-stock portfolio has no exposure to retail, which I’ve keyed in on throughout this article. It’s a bit of a different approach, but a way to combat wage hikes nonetheless.
Schneider Electric (SBGSY)
Schneider Electric is an automation company that has significant tailwinds. Its business model is focused on providing efficiency and sustainability to businesses. Schneider Electric serves diverse businesses across broad industry through its services and products.
If and when the minimum wage is increased to $15, a lot of companies are going to see how Schneider Electric can help them. Analysts give SBGSY stock an overweight rating, which is a positive sign. I don’t put a lot of stock into target prices and analysts sentiments, but it would be naïve to think they don’t hold some sway.
Smart buildings are becoming increasingly important as IoT begins to take shape. Companies are eager to reduce the costs associated with running their buildings. They’ll become much more so as wages increase.
Although Schneider Electric saw full-year revenues for 2020 decrease by 4.7%, there were positives. The company saw gross margins reach a 12-year high. In any case, Scheneider Electric is a great play on automation. And automation is a trend that will increase moving forward.
Costco is another retailer who has already done what AOC and the Democrats are seeking. In fact, it has exceeded their expectations. That’s because Costco decided to increase its minimum wage to $16 an hour in February.
Like the other retailers that have already chosen to do so, Costco is in an advantageous position to squeeze smaller competitors when the increase occurs.
COST stock has slipped a bit recently on mixed earnings. That means it represents a buying opportunity for investors who agree with my logic about its position: it will really take off when the $15 minimum wage occurs, and it’s relatively cheap at the moment.
Revenues rose for Costco in its most recent earnings report. However, analysts expected better EPS figures. As a result, Costco shares slipped. I think it’s a great time to buy all things considered.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.