2020 is a year for the record books, figuratively and factually. On one hand, we’ve seen nothing like the events that have so far unfolded. And on the other hand — and in spite of horrid economic conditions — stocks are breaking records. The initial shock of closing down the world caused a massive selloff. Then it quickly wore off and instead of continued weakness, we had a massive investment rotation. Some sectors of the economy died while others blossomed like never before. In such a bullish market, it has been relatively easy to find stocks to buy.
Investors panicked out of some stocks to pile into other themes. Crowd-oriented stocks struggled and gave birth to social distancing runs in stocks like Zoom (NASDAQ:ZM). All three of today’s stocks belong in the lucky categories. They all benefit from social distancing concepts to varying degrees. Moreover, today’s chosen ones are also momentum stocks, so they move fast.
If equity markets remain in the hands of the bulls, then these three shall rally more. This makes them a double bet on the social distancing and the general market themes. The only way they could lose is if Wall Street throws a hissy fit about something completely new. Otherwise, the bearish thesis on them is weak. They make great long-term investments and they trade well shorter term for active traders.
The three stocks today are:
Wild Stocks to Buy: Lululemon (LULU)
LULU stock is up almost 60% this year in spite of the bad economic conditions. Fewer people are going to work, so that’s more opportunities to stay in Luluemon’s athleisure clothing. While this is a short-term advantage, it’s a stock to own for the long term. LULU stock is in a breakout from $359 per share and could reach $380, or even attempt a new high. All it needs is for markets to hold up a few more weeks.
If you can’t trade it, then own it from dips. It is a winner long term. The company basically invented yoga-wear the way we understand it today. There is a generation of people who have never set foot on a yoga mat but have a closet-full of LULU products. They are expanding their reach by growing the men’s wear and other lines of products. Of note was their acquisition of Mirror this year, and that changes the game a bit.
With the advent of social distancing, owning a business that caters to working out at home is genius. The Mirror is a slick exercise alternative to the gym. Like Peloton, it also lends itself well to the subscription model, so the earnings are recurring. This is on top of the profits from selling the equipment.
The success of Peloton proves there are good days ahead for LULU. The team knows marketing, so I expect big returns on their investment. I already see it in ads that underline that the Mirror is indeed a Lululemon product.
The clientele so far has not cared about sticker shock from high prices. After the initial $1,495 expense, users will need to spend about $40 monthly. This is a genius business model, especially when states like California reverted to restricting the gym businesses. LULU will have a few more months to establish a good footing into this growing segment. It not being a bike could be an advantage over PTON, since the activities can vary. For example, I would not invest in a bike machine, but I would in a doorway to the world of yoga, to use one example.
Year-to-date, CRM stock is the laggard of the three, but not by much. It still beats the Nasdaq, up 52% this year. This includes the recent dip from last week. This is a stock to own long term, and it makes for an excellent trading vehicle too. Shorter term, while it is above $240 it’s still a buy. If the bulls can break out from $268, they could target a new all-time high.
I am not a fair weather fan — I’ve been a fan for years. Here is a buy-the-dip note from last May, when it was $100 lower. I’d prefer to buy it lcloser to $230, but dips are few and far between these days. Patience is a virtue.
About a decade ago, CRM made the cloud popular. It battled against Microsoft (NASDAQ:MSFT) and won against all odds. That gave it a great foot in the door, and Salesforce shoved it wide open. As a result, now all companies are pursuing this concept. It offers portability and less reliance on the personal computing locations. Users can draw on resources regardless of geography.
The advantages are great for both clients and service providers. For companies, this meant that they could now offer fee-based usage and charge monthly for it. On the other hand, the users are always working with the latest versions of data from anywhere in the world. 5G is coming and this concept is going to take another leap forward. Salesforce.com management proved itself worthy of the faith that investors have in it.
Own CRM stock for the long term because it is always looking ahead. Under the leadership of Marc Benioff they have executed on plans flawlessly. Last week, they made news again with their interest in acquiring Slack (NASDAQ:WORK). It won’t be cheap but if it happens, I am sure that they will put it to good use. Even if it doesn’t happen CRM stock would probably pop if the deal or the rumor dies.
Regardless, any serious dips in it continue to be buying opportunities.
Sales in Peloton bikes exploded to the point of creating a shortage. While this creates challenges short term, it’s a problem that all businesses wish they had. I remember a while back when experts sold Starbucks (NASDAQ:SBUX) stock because of the long lines. It didn’t make sense then and it doesn’t here either. PTON stock will be better off in the long term having a problem of too many sales. People love it and they will wait.
The bikes are expensive, but that hasn’t stopped consumers from lining up for them. The market will bear it. They will offer “cheaper” models to cast a wider net when they need it.
Having the subscription model is key. Peloton is effectively the first mover, so it retains that advantage. It is the name that people want … at least for a while. This is like Netflix (NASDAQ:NFLX), where it was king for a while, but now competition is coming on strong. But the at-home exercise market is so deep that there will be room for all to prosper for now. All the while, perception will be that Peloton is the original and the rest are the imitators.
From a trading perspective, I’d be a buyer of PTON stock above $115 or closer to $98. Long term it makes sense but short term it’s an expensive proposition. Trading around the levels works well.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.