How popular are work-from-home stocks?
Well, if you gauge investor interest by the creation of a work-at-home exchange-traded fund, I’d say they’re super popular.
On June 25, Direxion launched the Direxion Work From Home ETF (NYSEARCA:WFH), a fund that tracks the performance of the Solactive Remote Work Index, a group of 40 equal-weighted stocks that benefit from the work-from-home movement.
I’m a fan of equal-weighted ETFs, so right away, this is an investment that captures my imagination. If this weren’t an article about work-from-home stocks, I’d give you 10 reasons why you should buy Direxion’s newest offering.
“This is global in nature, and the benefit of what they’ve done is not just picking the poster children of the working-from-home phenomenon,” said Todd Rosenbluth, head of ETF and mutual fund research for CFRA. “This fund gives you a mixture of up-and-comers whose business model is being driven by that theme, and some megacaps that will get stock price growth from many things. This is not really a pure-play work-from-home ETF, which I think is positive.”
I couldn’t agree more. I’m looking for companies that will grow in any work environment.
- Adobe (NASDAQ:ADBE)
- Amazon (NASDAQ:AMZN)
- Crowdstrike (NASDAQ:CRWD)
- Elastic (NYSE:ESTC)
- Microsoft (NASDAQ:MSFT)
- Okta (NASDAQ:OKTA)
- Perficient (NASDAQ:PRFT)
- Twilio (NYSE:TWLO)
- Workday (NASDAQ:WDAY)
- Zoom Video Communications (NASDAQ:ZM)
These 10 work-from-home stocks have the right stuff.
Work-From-Home Stocks: Adobe (ADBE)
In early February, I wrote about the PDF creator, suggesting its stock was all but certain to hit $400 in 2020. It did in mid-June. Now trading above $425, it’s possible Adobe’s stock could hit $500 by the end of December.
Up 31.3% year to date, the company continues to deliver for shareholders. As long as Adobe keeps growing its cloud business, I don’t see it slowing down. InvestorPlace Markets Analyst Luke Lango agrees.
“Thanks to robust growth prospects in its three major businesses — Creative Cloud, Experience Cloud and Document Cloud — and its huge addressable market that management pegs at roughly $130 billion. Adobe reasonably projects as a [10%-plus] revenue grower for the next several years,” Lango wrote July 13.
As Lango reminds readers, with such high gross margins (90%-plus), Adobe is likely to keep growing the bottom line by 15% or more on an annual basis. Regardless of the work-from-home environment, Adobe’s a winner.
Interestingly, while Amazon stock lost approximately $113 billion in market capitalization between July 13 and July 15, something like 16,000 Robinhood traders bought its stock in those three days. That’s an increase of 5%, but more importantly, it’s a sign many investors see an opportunity to get a better price for Amazon stock.
And why the heck not? Amazon’s got to be one of the best stocks to hold for the long term.
I might not like its treatment of specific segments of its employee base. Still, there’s no question its entire operation runs at a very high level of efficiency — much higher than your average sizeable American business.
“It’s got a great business model. Plus, it’s using technology to innovate old-school industries like grocery, convenience stores, healthcare — the list goes on. I could see Amazon stock hit $10,000 by January 2023,” I wrote in May.
Amazon’s another example of a business that has benefited from the novel coronavirus. Sure, the company’s short-term profits will be hit, but Jeff Bezos always seems to be able to figure out where to pivot next, making the shortfall a temporary problem, not a permanent one.
Work-From-Home Stocks: CrowdStrike (CRWD)
Except for my recent recommendation of CrowdStrike’s stock in my article, 7 Hot Stocks to Stay Hot for Years to Come, I haven’t written in-depth about the company in quite some time. So, I thought I’d lean on one of my colleagues for a little bit of a refresher.
InvestorPlace analyst Matt McCall gave CrowdStrike the thumbs up in his July 15 article, reminding readers just how relevant cybersecurity, both pre- and post-pandemic. He says:
“According to a CNBC report in October 2019, the average cost of a cyberattack across all business sizes is $200,000. This specific data point comes from insurance carrier Hiscox. But it’s not just the nominal cost,” McCall wrote. “Associated with a data breach comes opportunity cost in terms of recovery efforts and dramatically reduced productivity. All told, 60% of small businesses close up shop within six months of a cyberattack.”
That’s an astounding figure. They say the best businesses are those that make or save people time or money. There is no question CrowdStrike does both.
For my money, while work-from-home trends help it grow, it was already growing nicely before the pandemic came along. Covid-19 merely sped things up a little.
Despite being public for almost two years, Elastic is a company I’m not too familiar with. Given ESTC stock has gained 151% since its IPO on Oct. 4, 2018, I really ought to know more about this hard-charging tech stock.
Who better than InvestorPlace’s Tom Taulli, an IPO expert, to fill me in on Elastic’s business and business model.
According to Taulli, Elastic was created as a search engine for recipes that’s morphed into something far more useful. It now provides Big Data search capabilities for the enterprise customer. Elastic has outgrown its apartment startup mode and now has more than 11,000 customers, with 610 of them generating annual revenues over $100,000.
Data analytics is a high-growth industry. It’s not surprising that ESTC stock has more than doubled since going public. I might not be entirely up to speed about its business, but it’s easy to understand why it’s growing its customer base 40% per year.
Work-From-Home Stocks: Microsoft (MSFT)
Each of the stocks selected in this article are holdings of Direxion’s ETF. Microsoft is what I would simultaneously call a defensive stock and an offensive stock.
Defensive, in that, it has some of the best-performing products and services in the tech industry. Microsoft’s reimagining by CEO Satya Nadella has built the company into a dominant enterprise that can do well in good times and bad. As a result, shareholders have benefited handsomely.
It’s offensive in the sense that it’s got lots of untapped potential in several areas of its business.
For example, InvestorPlace’s Robert Lakin recently discussed some of the things it’s doing in healthcare by utilizing Microsoft Azure, the company’s cloud business.
“A recent survey of 130 chief information officers found that over half said Microsoft’s cloud unit Azure would be the most critical for their tech needs going forward,” Lakin wrote July 15.
Amazon might own the most significant share of the cloud, but Microsoft continues to nibble away at its lead through initiatives in large sectors such as healthcare.
In May, I said that Microsoft stock wasn’t overvalued at almost 30 times forward earnings. Further, I said $200 was just around the corner. It hit $200 about three weeks after my article. Long term, I believe Microsoft has plenty of levers to pull for growth. It’s only a matter of time before we’re talking about a $600 share price.
It’s hard to believe, but I haven’t talked about the cloud-based cybersecurity company in 2020. And what a year it’s been with OKTA stock up 75.5% through July 16.
In December, I argued that Okta remained a compelling buy despite the fact it didn’t make money. As a company building to scale, it’s unrealistic to think it can quickly turn on the profit tap. That takes time and financial discipline.
“Any company that’s following a pathway to profitability has got to figure out how to balance revenue growth while controlling expenses. No business can lose money indefinitely. Eventually, even some of the best ideas run out of money,” I wrote in December. “In October, I stated that Okta needs to turn its operating margins from negative to positive if it wants to hit $188.71 in 2020. Mind you, this doesn’t have to happen immediately, but I would hope by the end of 2020 or early 2021, it would be delivering healthy operating margins.”
So, how is Okta doing on the margin front?
In the first quarter ended April 30, Okta’s non-GAAP gross margin was 78%, 200 basis points higher than a year earlier. In terms of operating losses, it had a non-GAAP operating margin of negative 7%, 65% better than a year earlier.
Life is good for Okta shareholders.
Work-From-Home Stocks: Perficient (PRFT)
Perficient is the second company on my list of work-from-home stocks I’m not familiar with. However, my cursory look at its business and financials leads me to believe that it’s got a great future with or without Covid-19. Here’s why.
First off, let me just say that I’m not the only one who’s been in the dark about the St. Louis-based enterprise consulting firm. Not a word’s been written about the company by InvestorPlace’s large contingent of contributors. So, I could be uncovering a diamond in the rough.
Although Perficient’s stock is down 22% year to date, its long-term performance is excellent. Over the past 10 years, it has an annualized total return of 15.4%, 150 basis points higher than the entire U.S. market.
Perficient’s business is relatively simple to understand: It helps large- and mid-size firms digitally transform their businesses.
In early May, it announced its first-quarter results. On the top line, revenues increased by 9% to $145.6 million. On the bottom line, its adjusted earnings per share increased by 19% to 51 cents from 43 cents a year earlier.
Like most businesses, it’s withdrawn its 2020 guidance due to Covid-19. However, due to its digital capabilities, it continues to be called upon by its Global 2000 companies to get them through this time of crisis.
It’s not a high-growth business, but its consistent revenue generation makes it an excellent defensive play.
Of all the stocks in this article, Twilio’s performance in 2020 is the least surprising. Up 142% year to date, the company’s application program interfaces, or APIs, allow companies to communicate more easily with their customers. Whether it’s through text, voice, chat or video, Twilio is changing how companies interact with their customers.
Covid-19 has been an excellent marketing tool for the company, but there’s no question its cloud communication platform was gaining traction well before the virus boosted the work-from-home movement. Regardless of whether people go back to offices, Twilio will continue to grow its business.
Here’s what InvestorPlace Markets Analyst Luke Lango had to say about Twilio recently:
“Twilio stock is a great buy at this point. Actually, the best time to buy this stock has already come and gone,” Luke wrote July 15. “But the stock will likely remain strong for the foreseeable future, despite investors’ valuation concerns, because its fundamental growth and its outlook will remain favorable. Plus, its valuation isn’t that out of touch with its fundamentals.”
I couldn’t agree more. That’s why I included Twilio, along with CrowdStrike, in my July 9 article about hot stocks that will stay hot.
I will be shocked if TWLO stock hasn’t doubled in the next 12-24 months.
Work-From-Home Stocks: Workday (WDAY)
InvestorPlace contributor Laura Hoy argued in late March that investors should hold tight on buying the human capital and financial management software-as-a-service (SaaS) provider’s stock. Hoy felt WDAY stock was due for a correction as the coronavirus bit into the company’s sales. Instead of falling in price, Workday’s stock went on a three-month run gaining more than 27%, putting its year-to-date return in positive territory at 10.5%.
In defense of Hoy, although its stock did not fall as predicted, her argument was sound. If companies face tough times, Workday’s offerings will be put on the back-burner. A Forbes article from early July argued the same thing.
“The global spread of Coronavirus, and the resulting lock downs and quarantine means that a lot of businesses are struggling, and many will want to cut costs drastically,” the July 3 article stated. “Due to this, Workday will find it difficult to acquire new clients, and it’s likely that some of their existing clients might also want to shift HR and payroll processing activities in-house, instead of outsourcing.”
I’m not sure about that last part, but it’s a reasonable argument nonetheless.
So, why am I including Workday on the list?
Sure, because the company’s subscription revenue is recurring in nature, it might not convince as many companies to sign on during the pandemic as it usually does. Still, those already on board are going to find it challenging to switch how they do things from an HR and financial management standpoint.
Workday’s subscription revenue backlog of $8.19 billion may drop over the rest of 2020 as companies pause their plans. Ultimately, however, Workday’s business model remains a good one.
Call me a contrarian, but I think the company will get through this crisis in excellent shape.
Zoom Video Communications (ZM)
If there was a poster child for coronavirus business success, Zoom would easily be one of the leading candidates. Virtually out of nowhere, its communications platform has become the “Xerox” of the 2020s.
It used to be you would “Skype” someone. I still do, but rarely do people talk about Skype meetings. But I’d be a rich man if I had a dollar for every time someone mentioned that they had Zoom meetings all day.
And the weird thing is, the major privacy issues it’s faced after Zoom use skyrocketed, will ultimately make the company and its product more exceptional. What doesn’t kill you makes you stronger, or so the saying goes.
As InvestorPlace Markets Analyst Luke Lango stated recently, “It’s tough to argue against Zoom’s fundamentals. They are rock solid.”
With revenues up 169% in the first quarter alongside a 354% increase in customers, Zoom’s business has gotten the ultimate kick in the pants. Between privacy issues and unbelievable growth, the pressure on the company and its employees has got to be intense.
But that’s what you want in business. You want to know that you can face the fire and not only survive, but thrive.
Zoom is doing the latter.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.