In most years, September typically means its back-to-school time, but 2020 is an extraordinary year. It is still not definite how the academic year is going to shape up. Despite uncertainties stemming from the novel coronavirus, the new school year will mean growth for some companies. Today, we will look at three school stocks to buy in the current dynamics.
As students get ready to start a new academic year, teachers, administrators, students as well as parents have question marks about how to balance social-distancing with online and face-to-face education.
It also means shopping for the back-to-school season will be different. After the holiday season, school shopping is typically the second busiest time of the year for retailers. Yet the pandemic has upended the usual routine for most consumers and businesses.
Distance learning is fast becoming the new normal. Like so many aspects of our lives online, students and most individuals will need to become more technologically savvy. This will require both skills and access to up-to-date machines, such as laptops, smartphones and other accessories.
According to a 2018 report titled “The Next Era of Human-Machine Partnerships,” published by Palo Alto, California-based The Institute for the Future, “By 2030, populations’ needs and resources will be orchestrated by self-learning, digital technologies, allowing humans to take the role of digital resource conductors. Technology will work as an extension of people, helping orchestrate, manage, and automate many day-to-day activities.”
This new decade will potentially see education evolve in such a way that students and employees would need to become ready to not only survive but also thrive in the technological revolution.
Let’s take a closer look at three school stocks to buy:
School stocks to buy: Chegg (CHGG)
Santa Clara, California-based Chegg defines itself as a “learning platform, which is on-demand, adaptive, personalized, and backed up by a network of human help.” Its services, such as Chegg Study, Chegg Writing and Chegg Tutors, allow students to get help on its learning platform through a network of live tutors.
In early August, Chegg released second-quarter results which topped estimates. Revenue was $153.0 million, an increase of 63% year-over-year. Management also offered strong guidance.
The company has become one of the of the main beneficiaries of the online schooling shift. As a result, year-to-date, CHGG stock has almost doubled. Long-term investors may consider buying the dips, especially if he share price goes below $70 or below.
Global X Education ETF (EDUT)
The Global X Education exchange-traded fund invests in companies providing products and services that facilitate education, including online learning and publishing educational content, as well as those involved in early childhood education, higher education and professional education.
EDUT, which tracks the Indxx Global Education Thematic index, has 36 holdings. The sector allocation (by weighting) is consumer discretionary (48.3%), information technology (23.6%), communication services (15%), and industrials (13.1%).
The top 10 holdings make up 67.8% of EDUT’s total net assets, which stand at $5.43 million. EDUT’s top five companies are GSX Techedu (NYSE:GSX), TAL Education Group (NYSE:TA), New Oriental (NYSE:EDU), Zoom Video (NASDAQ:ZM) and Bright Horizons (NYSE:BFAM).
The fund started trading only on July 15, at an opening price of $14.91. So far, in about six weeks, it is up around 6%. Potential investors may want to do due diligence on the fund’s holdings to see if EDUT should belong in their long-term portfolio.
Further research into these companies will show that most are leveraging technology to reduce costs and broaden access. A number of them are offering supplementary education services, typically by fulfilling unmet demand, especially given the pandemic’s reality.
VanEck Vectors Retail ETF (RTH)
The VanEck Vectors Retail ETF invests in companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, and food and other staples retailers.
RTH, which tracks the MVIS US Listed Retail 25 index, has 25 holdings. Sector allocation (by weighting) is consumer discretionary (69.5%), consumer staples (21.7%), and healthcare (8.8%).
The top 10 holdings make up 73.64% of RTH’s total net assets, which stand at $159.4 million. The index methodology favors the largest companies in the industry. The top five companies are Amazon (NASDAQ:AMZN), Home Depot (NYSE:HD), Walmart (NYSE:WMT), Lowe’s (NYSE:LOW) and Costco Wholesale (NASDAQ:COST).
Due to social distancing, adults may decide not to bring young children into stores. This may result in a different shopping pattern than previous Septembers. Also, consumers will likely buy more electronics and computers rather than clothing or stationery.
So far this year, RTH is up over 26%. It hit an all-time high on Aug. 27. The run-up since early spring is overextended. As a result, short-term profit-taking is likely. Long-term investors may consider buying the dips, especially if the price declines below $145.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
