About this time last year, all was fine for most of the world. We started to get some news updates about some sort of virus in China, but no one was really worried about it. A few months later, we had a group known as stay at home stocks, and they were exploding higher.
My, how fast the world can change. However, investors would be short-sighted to look at stocks in this group and think the run is over.
That seems like the obvious trade, with vaccines making their way through the public and with the world eager to get back to regular life. And while a return to regular life will give many beaten-down industries renewed life, it doesn’t necessarily mean these stay at home stock are set to fail.
Here’s the thing: The companies on this list aren’t just cashing in on the pandemic. Instead, they are riding secular trends and have been for years. They will continue to rake in revenue even after the pandemic is over.
With that in mind, let’s look at seven stay at home stocks that will continue to win:
Stay At Home Stocks to Watch: Zoom Video (ZM)
Likely considered the king of stay at home stocks, Zoom Video has been a monster over the past year. However, shares have declined considerably from the highs. After its run though, it’s no surprise to see it finally come down.
I love Zoom for one big reason: It was a great business before the novel coronavirus came along. In the pre-coronavirus world, Zoom still had strong revenue and earnings growth. Further, it was profitable and free cash flow positive.
Obviously it received an enormous boost in revenue from Covid-19. But with record cases and deaths being recorded each day, trust me, there’s not going to be a huge rush to leave the remote working environment.
Further, analysts are optimistic about future growth estimates. Despite the company likely growing sales more than 300% in CY 2020, analysts expect almost 40% growth in CY 2021.
More likely than not, Zoom’s bump from Covid-19 won’t result in just a short-term boost in business. It will result in a large number of businesses, entities and customers sticking with Zoom for the long term.
After falling more than 40% from peak to trough, investors may have an opportunity with this stock.
DocuSign is another well-known stock in this trade. However, shares have not quite enjoyed the success that Zoom has. While the latter is up 400% over the past year, DocuSign is up a respectable 250%.
However, it has staying power just like Zoom. The company’s “Agreement Cloud” thrusts contracts into the technology world. More specifically, DocuSign makes it simpler and more convenient to work out deals and agreements with other parties in the cloud.
Take real estate for example. Plenty of houses were still sold during various states of lockdowns. To get the deals done, agents and title companies worked via DocuSign and hammered out deals without the need to get together in person.
But DocuSign’s success goes far beyond real estate transactions, as its foothold in the business world creates a cheaper and more efficient solution for companies. Anytime a platform makes life cheaper and easier for businesses, they generally have staying power.
As it now introduces AI to its contracts and gets into notarizing, DocuSign is opening up more business segments to boost its long-term growth.
Moving out of purely tech and into retail, Walmart is one of the stay at home stocks to watch for 2021.
In a world of evolving retail, there are bound to be some winners and some losers. Walmart is the former category, as the company leans on a superior in-store experience and product mix, as well as strong omni-channel operations.
When the pandemic hit, Walmart and a handful of other retailers were deemed essential. That kept the doors open and the revenue coming at a time when many others had to close their doors.
Walmart isn’t just letting Amazon run away with the internet, either. The retailer is leaning on its new Walmart+ service, alongside its order-and-pickup service and its e-commerce unit.
Between it all, Walmart is an established retailer that can win with or without a pandemic. Considering the company’s willingness to spend for growth and its dividend yield of 1.5%, it’s worth considering Walmart. Lastly, Walmart has not only paid, but raised its dividend for 47 consecutive years.
Amazon is a really interesting stock. When Covid-19 sparked a market-wide correction, shares fell “just” 25% from its all-time high. While it seems hard to say “just 25%,” that’s about 1,000 basis points better than the S&P 500.
Further, after bottoming in March, it took just five weeks for Amazon to surge about 50% to new all-time highs.
The stock kept on trucking higher after that, as investors quickly realized the pandemic wasn’t stopping consumers from spending — it was simply shifting where consumers spent their money. The realization that it would go to Amazon helped send shares to new record highs.
With its $1.5 trillion market cap, Amazon isn’t really flying under the radar. However, shares are flat since July 9. Yep, you heard that right. The stock is up less than 1% for just over the past six months. That large base and consolidation could be giving investors an opportunity to get long.
That’s particularly true with consensus expectations calling for almost 20% sales growth in 2021, alongside 30% earnings growth.
When the pandemic struck, Netflix became one the ultimate stay at home stocks. With it being winter in many areas and with most of retail in varying states of lockdown, what are consumers up to?
They stayed home streaming movies and TV shows.
Netflix was very similar to Amazon in regards to its pandemic rally. The stock quickly shot up more than 50% in a few weeks, notching new record highs. The company saw a huge pull-forward in new subscribers. Further, free cash flow exploded higher as Netflix had to shelf a lot of its content production and filming.
Also like Amazon, the stock has been stagnant since summer. Shares are up just 2.5% from mid-July.
For 2020, analysts expect Netflix to grow its sales and earnings 24% and 52%, respectively. In 2021, estimates are still strong. Consensus expectations call for sales to grow almost 20% to $29.5 billion. On the earnings front, estimates call for more than 40% growth.
Despite the big rallies we’ve seen in the FAANG group in 2020, most have been consolidating for months now. Will that point to more gains at some point in 2021?
Teladoc is a very interesting name to watch going forward. Not only does the company run a great business as it is, but it merged with Livongo, another great company.
However, there is a big conclusion being drawn by investors about this new tie-up and I think that conclusion is incorrect: That these businesses are only doing well because of Covid-19.
The concept of telehealth didn’t come about in 2020 as a solution to the coronavirus. No, in fact, it’s only a natural progression. Why not introduce technology and remote capabilities into the healthcare field? It only makes sense.
As such, these companies didn’t spring up overnight. Livongo was founded in 2008 and Teladoc was founded almost two decades ago in 2002.
Just take a look at what the combined company is forecast to do on the revenue front. Analysts expect $1.08 billion in sales this year, followed by $1.96 billion and $2.63 billion in revenue in 2021 and 2022.
For a company to go from about $550 million in sales in 2019 to $2.6 billion in 2022 (even with a merger) is incredibly impressive.
Tech, retail, streaming video, telehealth, remote work — these groups get all the Covid-19 attention when it comes to growth. But how could anyone forget about good old Clorox?
The longtime maker of sanitation products, Clorox became an overnight sensation when the coronavirus began making its entrance into the U.S.
Obviously not known as a growth giant, Clorox brings other attributes to the table. First, the company has been around for more than 100 years, having been founded in 1913. Second, its dividend is really something to marvel. It’s 2.25% dividend yield is more than double the 10-year Treasury yield. Following its 4.7% increase in May, the company has now raised its annual payout for two consecutive decades and has paid a dividend for more than 50 straight years.
Lastly, the company is nicely diversified. Many just think of wipes and bleach, but it goes well beyond that. Clorox includes brands like Glad garbage bags, Pine Sol, Brita filters, Burt’s Bees, Hidden Valley Ranch and Fresh Step kitty litter, among others.
At its recent low, shares were 20% off the highs from August. For bulls, that may be a long-term opportunity.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.