With the pandemic wreaking havoc on many parts of the economy, this holiday season is shaping up to be markedly different from previous ones… 

People have avoided spending money on vacations and traveling… sending airline, hotel, and cruise line stocks plummeting.

The question is, will these savings be spent on holiday shopping… or will the weak economy reduce festive spending altogether?

I believe it will be the former. Many retail companies have made the necessary adjustments to facilitate online orders and store pick-ups. And while many families have struggled this year, big online retailers offer plenty of low-cost gifts. In addition, middle income and affluent households have paid down debt and increased savings, providing a cushion to spend this holiday season. 

Today, I’ll explain why Black Friday and Cyber Monday are important harbingers of retail profits… and five ways to boost your earnings during the holiday season… if you act now. 

Black Friday

“Black Friday,” the day after Thanksgiving, was dubbed in the early 1960s. It kicks off the holiday shopping season… and is one of the most important retail spending days in the country. 

Since 2005, it’s been the busiest shopping day of the year. Many retailers like to get a jump on holiday shopping by offering deep discounts… and generate enough sales to remain profitable for the year.

Investors can look at Black Friday sales as a way to evaluate the retail industry. If sales are strong, it bodes well for the rest of the holiday season… and vice versa.

Cyber Monday

Cyber Monday, or the Monday after the Thanksgiving holiday weekend, was created by retailers in 2005 to encourage holiday shopping online. Traditionally, Black Friday featured the best in-store deals and Cyber Monday featured the best online deals—but this year is expected to be different.

Due to store capacity limits, and fear of catching the virus, more people will be shopping online than ever before. We’ve already started to see retailers promoting early online deals ahead of Black Friday and Cyber Monday.

Previously many retail stores opened on Thanksgiving to get a jump on sales. This year however, most stores will remain closed due to the pandemic. So expect to see both Black Friday and Cyber Monday take place online. 

How to profit from the holiday season

While I don’t recommend making major changes to your investment strategy before the holidays, positioning your portfolio to take advantage of the season could be fruitful. 

Retailers take center stage, as they’re the companies most likely to benefit from increased sales. But you need to be selective—not every retail store is positioned to do well in the “new normal.”

That’s why I’m focused on three companies well-equipped to handle online transactions… and have the infrastructure to handle order pickup and delivery services. These companies also have plenty of lower-cost merchandise for cash-strapped consumers to stretch their dollars. And their names shouldn’t surprise you…

Walmart (WMT) 

Walmart is the largest retailer in the U.S. by revenue, with $137 billion at the end of last quarter. Walmart has typically been the primary destination for many Black Friday shoppers. That shouldn’t change this year, as the company has been ramping up its e-commerce capabilities. 

Not only does Walmart.com provide an easy shopping experience, but the company expects to hire 20,000 workers to pack and ship online purchases at its fulfillment centers. The company just reported its latest financial results, posting stronger-than-expected earnings as e-commerce activity boosted same-store sales. With its vast product line and affordability, this is one stock to watch this holiday season. 

Target (TGT)

Similar to Walmart, Target has a robust e-commerce platform that was implemented well before the pandemic. The company is planning to hire over 10,000 workers to process online orders. Target has already got a jump on sales by offering Black Friday pricing through November. 

The company has already seen strong online sales this year. Its latest earnings release reported curbside pickup numbers grew more than 500%. Its Shipt home delivery service was also up nearly 280%. Like Walmart, Target offers lower-cost items—perfect for families that may have been affected by job loss due to the pandemic. 

Amazon (AMZN) 

My third pick is poised to benefit more than any other stock this holiday season. Amazon was providing e-commerce before anyone else. The company reported record holiday sales last year, with billions of items sold. 

Its two-day Prime Day sale, which took place in October this year, has seen sales surge 36% year over year. 

To me, this is an indication of strong sales this holiday season. Plus, Prime members get free two-day shipping, which makes it a no-brainer for consumers to shop at the e-commerce giant.

While many investors prefer to invest in individual stocks, others want to take a more diversified approach with exchange-traded funds (ETFs). 

Buying an ETF works the same as buying an individual stock. However, these funds own dozens (or even hundreds) of stocks, which means we get the benefits of diversification. And as you probably know, diversification is one of the best ways to reduce the volatility of your portfolio. Here are my two top picks for the holidays…

VanEck Vectors Retail ETF (RTH) 

This ETF invests in 25 of the world’s largest and most traded retailers. Its top holdings are a “who’s who” of retailing. Three of its top ten holdings are Walmart, Target, and Amazon—the picks I’ve already highlighted. 

Two other notable holdings are home improvement giants Home Depot (HD) and Lowes (LOW). The home improvement industry has been a beneficiary of the pandemic, with work-from-home culture creating more demand for home improvement products. Home Depot and Lowes should see strong sales of tools that are likely on many dads’ wish lists this holiday season.

ProShares Online Retail ETF (ONLN) 

The e-commerce boom is likely only going to increase through the holidays. The ProShares Online Retail ETF invests in over 25 retailers that principally sell online. Top holdings include the two largest e-commerce companies in the world: Amazon and Alibaba (BABA). Alibaba is considered the “Amazon of China.” Other notable holdings include pet store Chewy Inc. (CHWY), and online marketplace Ebay (EBAY). 

According to the 2019-2020 National Pet Owners Survey, 67% of U.S. households own a pet. Chewy has already seen robust growth due to its e-commerce business model, this looks set to continue as families purchase holiday gifts for their pets. 

Meanwhile, Ebay is a massive online shopping destination, thanks to its vast selection of products, vendor discounts, and ease of ordering.

Taking action

If you’re looking to boost your profits from the upcoming holiday season, these three stocks and two ETFs can be a great addition to your portfolio.

For example, Walmart is up 27.8% so far this year, closing on its 30.2% 2019 gain. Target is up 35.5% in 2020, after gaining over 100% last year. Amazon is having an even better year—up over 68% so far, and could see further gains this holiday season. 

If you’d purchased Amazon a week before Thanksgiving last year, you’d have gained 6.5% through the end of the year. The stock finished up 23% for 2019.

Wishing you and your family a safe—and profitable—Thanksgiving holiday…

Authors that regularly contribute articles covering topics in their area of expertise.