The COVID-19 pandemic triggered massive panic selling from February through March, killing the oldest bull market in stocks, while the economy collapsed into a deep recession.
Quick and decisive action by the Fed to lower interest rates and inject the market with more cash as well as provide a huge stimulus package helped the market bounce back much quicker than anticipated.
Nevertheless, Covid-19 has drastically altered the unique characteristics of the American market.
What has been outstanding about the Covid-19 market crash and subsequent recovery is that many classic defensive sectors such as utilities, cell phone carriers, telecoms, consumer staples and personal products have not acted defensively at all in the face of a lockdown.
In fact, utilities and consumer staples have markedly underperformed the market while a new class of businesses (aka ‘Stay-at-Home stocks’) are not only booming, but promising to sustain the boom, long-term.
Here are 5 Stay-at-Home stocks that are likely to remain strong even after the world moves past the Covid-19 crisis.
YTD Returns: 62.2%
North America’s largest eCommerce operation, Amazon.com Inc. (NASDAQ:AMZN), has been winning all around, even with the brick-and-mortar stores it competes againstgradually reopening.
Amazon reported 100,000 job additions to help deal with the Covid-19 boom as stores that deal with non-essential goods were forced to close down. The company’s Prime Video service has also been doing gangbusters during the lockdown after recording a 67% surge in subscribers during the first quarter of 2020.
But it would be disingenuous to credit the health crisis for the company’s success.
Amazon has been the biggest reason behind the retail apocalypse that began long before Covid-19 struck, consistently growing its eCommerce market share thanks to a smooth shopping experience, low prices and an unparalleled delivery network. Meanwhile, the company’s cloud business, AWS, has been its profit engine, contributing more than 70% of its operating income and allowing the company to continue expanding at a rapid clip.
These factors are likely to remain unchanged long after Covid-19 is in the rearview mirror.
In fact, with older generations that were traditionally more difficult for eCommerce to lure in now fully on board with online shopping, and with convenience tending to be habit-forming, things are likely to return to “normal” in the shopping world once the COVID dust fully settles.
YTD Returns: 265.3%
The ongoing pandemic has caused a seismic shift in work habits with remote work becoming the new norm. Many businesses are now allowing their employees to telecommute and work from home in a bid to enhance social distancing and minimize chances at infection–even when they don’t have to.
Videotelephony and online chat services company Zoom Video Communications Inc. (NASDAQ:ZM) has emerged as the biggest winner here with Zoom quickly becoming a household name due to the shift to work-from-home setups as authorities encouraged people to stay at home. As of December 2019, Zoom had ~10 million active users. By April 2020, the company reported that it was recording 300 million daily meeting participants.
And remote work–like online shopping–appears to be here to stay, COVID or not. Companies have realized that it actually works, and eventually they’ll be eyeing the vastly reduced overhead costs of this setup.
Whereas a computer screen can’t match the physical office when it comes to managerial oversight, mentorship and support and opportunities for social bonding, Covid-19 has been an eye-opener for companies who now realize they can save big money on commercial real estate, which is insanely expensive in places like Silicon Valley and Manhattan. Further, a virtual workplace is pushing companies and workers to focus more on performance rather than merely “clocking hours”.
Indeed, a sizable number of blue-chip companies–including Facebook and Twitter– plan to continue allowing many of their workers to work remotely post Covid-19.
Zoom investors are going to be better off for it far into the future.
YTD Returns: 29.3%
Microsoft Corp. (NASDAQ:MSFT)is a true tech giant, and technology companies have generally proven to be surprisingly recession proof. The tech sector’s favorite benchmark, the Technology Select Sector Fund (XLK),is up 16% vs. -0.5% YTD return by the S&P 500.
Microsoft Teams has emerged a favorite among the work-from-home group with theservice recording a robust 70% growth in the number of daily active users (DAU) in April to 75 million. Teams nowis now ready to break out as a standalone product just like Zoom or Slack.
Microsoft, however, has been a great stock to own well before Covid-19.
Increasing cloud traction is a big reason why MSFT shares are up nearly 30% YTD and 176.3% over the past three years. The huge popularity of the tech giant’s Azure cloud-computing business has been helping the company sell its myriad software subscriptions such as Office 365. Recently, Microsoft and Azure scored an important psychological victory overAmazon and AWS after the Pentagon awarded the company the hotly contested $10 billion JEDI cloud contract.
Microsoft’s CEO Satya Nadella has been credited for steering the company away from the monolithic ‘Window First’ to a ‘Cloud First’ company–and the world has responded.
YTD Returns: 61.7%
Video streaming giant Netflix Inc. (NASDAQ:NFLX) has been another big beneficiary of the new stay-at-home way of life. Netflix has been recording robust subscriber growth, with the lockdown helping the company post blowout numbers of 10.1M net additions of global streaming subscribers during the second quarter following 15.8M adds in Q1.
Q2 2020 revenues climbed 25% to $6.15B, topping consensus for $6.08B, though net income of $720M, up from a year-ago $271M, and EPS of $1.59 fell short of expectations for $1.83.
Despite the profit miss during the Q2 2020, Netflix is likely to prove prudent long-term investment.
The service is priced well enough, something that has helped the company continue growing even in poor economic cycles and helped NFLX stocks surge 433% over the past five years.
Netflix still has been finding many opportunities of growth outside its core US market with an uncanny ability to produce original content and multiple multiseason series for a wide variety of demographics that keeps people of all walks of life glued to their screens. With about 182 million worldwide subscribers, the NFLX momentum is more than sustainable.
YTD Returns: 72.3%
Video game sales have really surged during the lockdown. According to NPD,sales of gaming hardware, software and accessories in the US jumped 35% to $1.6 billion in the month of March 2020 alone.
But Nvidia was winning the graphic processor chip battle long before that.
Over the past couple of years, Nvidia Corp. (NASDAQ:NVDA) has emerged as the true king of graphics processors, managing to consistently post strong top- and bottom-line growth and surpass expectations.
Further,Nvidia is at the intersection of, and perfectly positioned to benefit from, robust growth by many cutting-edge technologies including artificial intelligence(AI), machine learning, self-driving cars, crypto-mining efforts and other future tech applications. These fields are not likely to be dead-end roads after the coronavirus pandemic passes, as evidenced by the amazing 1,970% surge by NVDA over the past five years.
Nvidia’s Chip rival Advanced Micro Devices Inc. (NASDAQ:AMD) gets the runner-up nod here as it continues to steal datacenter market share from CPU giant Intel (NASDAQ:INTC). AMD shares are up an astounding 2,840% over the past five years.