One of the key observations about asset markets is that there is always a bull-run in some stocks or sectors, irrespective of economic conditions or other headwinds. Even during the novel coronavirus pandemic, there were dozens of stocks to buy that delivered multi-fold returns. In particular, sectors like at-home entertainment, gaming, e-commerce and pharmaceuticals benefited from our newly homebound lifestyles.
As the United States continues to fight Covid-19, the good news is that 47.9% of the U.S. population is vaccinated. However, the bad news is that the delta variant has already become the dominant variant in the country. The delta variant is highly contagious and the rise in cases is a concern for counties that have a relatively low rate of vaccination.
If the delta variant continues to trigger a global rise in Covid-19 infections, the following seven stocks might be best positioned to benefit:
- Nautilus (NYSE:NLS)
- DoorDash (NYSE:DASH)
- Zoom Video Communications (NASDAQ:ZM)
- Activision Blizzard (NASDAQ:ATVI)
- Netflix (NASDAQ:NFLX)
- Newmont (NYSE:NEM)
- Valneva SE (NASDAQ:VALN)
Stocks to Buy if the Third Covid Wave Intensifies: Nautilus (NLS)
At-home fitness has already notched significant growth through the pandemic. A potential third wave of Covid-19 would likely spur further gains. NLS stock is an attractive pick with ambitious growth plans. Plus NLS stock has been sideways to lower in the current year; that seems like a good accumulation opportunity.
Among other short-term goals, Nautilus plans to cross 250,000 members by the end of 2022. Further, the company is targeting user growth to two million members by 2026. Nautilus also expects $1 billion in revenue by that year.
Clearly, the company’s plans are ambitious and the pandemic is likely to translate into strong membership growth. The company also believes that it can achieve sustainable operating margins of 15%. Therefore, there is visibility for healthy cash flows.
Another important point to note is that the company’s retail segment growth has been stellar. The company entered Q1 2022 with an order backlog of $179 million. With the company witnessing strong demand for its connected fitness cardio products, the retail segment is likely to be a key growth driver.
Overall, NLS stock seems to be in a consolidation phase. A strong break-out on the upside is likely if the third Covid-19 wave intensifies and sparks increased demand for at-home fitness products.
Data indicates that DoorDash has a 55% market share in the online food delivery market in the United States. Uber Eats is a distant second with a market share of 22%. Given this statistic, DASH stock looks attractive as demand for online food delivery is likely to remain robust.
DASH stock might seem to be trading at expensive valuations. However, the company’s growth has been stellar. It’s likely that strong growth will sustain. For Q1 2021, the company reported revenue growth of 198% on a year-on-year basis to $1.1 billion. The company also turned adjusted EBITDA positive, compared to an EBITDA level loss in Q1 2020.
It’s also worth noting that DoorDash is expanding beyond just food delivery. And through partnerships, the company has made foray into on-demand groceries, pet care and wellness essentials.
Another growth trigger for the company is international expansion. Besides the United States, the company already has presence in Canada and Australia. And last month, the company announced expansion into Japan. Clearly, there are ample growth triggers here to make DASH stock attractive.
Zoom Video Communications (ZM)
After “unprecedented” growth in 2020, Zoom Video expects that positive momentum to sustain. The company’s founder Eric Yuan believes that “the future is here with the rise of remote and work from anywhere trends.” That being said, a possible third wave is another reason for the work-from-home trend to continue.
In terms of stock price action, ZM stock has been relatively sideways over the past six months. And like Nautilus, that seems like a good accumulation opportunity. From a growth perspective, Zoom Video reported revenue of $956.2 million for Q1 2022. This was 191% higher on a YoY basis. Strong, sustained growth underscores the view that work-from-home trend is likely to continue.
It’s also worth noting that Zoom reported cash and equivalents of $4.7 billion for Q1 2022. For the same period, the company reported free cash flow of $454 million. With strong financial flexibility, the company is positioned for acquisition driven growth.
Recently, the company acquired Kites GmbH, which is in the business of developing machine translation solutions. This will help Zoom improve meeting productivity and efficiency “by providing multi-language translation capabilities for Zoom users.”
Overall, ZM stock looks attractive from a fundamental perspective as well as with positive industry tailwinds. As strong growth sustains and FCF accelerates, the stock is bound to trend higher.
Activision Blizzard (ATVI)
Online gaming and entertainment have also benefited from people staying indoors. If the third wave of Covid-19 intensifies, positive trends for the gaming industry will likewise spike.
ATVI stock is among the most attractive stocks to buy from the industry. At a current price-to-earnings-ratio of 24.8, the stock looks primed for healthy business growth and higher prices.
It’s worth noting that the company’s revenue exceeded expectations for Q1 2021. Growth was primarily driven by Activision where revenue surged by 72% on a YoY basis. At the end of the quarter, the company’s monthly active users were 435 million. And Call of Duty free-to-play and mobile experiences have translated into a strong user growth.
With new content being the revenue growth driver, Activision Blizzard plans to hire more than 2,000 developers in the next two years. This provides growth visibility for the long-term as content development accelerates.
From a financial perspective, the company reported net cash of $3.28 billion as of March 2020. However, the net cash position swelled to $5.87 billion as of March 2021. With the business generating robust cash flows, dividends are likely to increase in the foreseeable future.
NFLX stock has been an underperformer in the past 12-months. An obvious reason is intense competition in the live content streaming business. However, NFLX stock looks attractive and seems to have strong technical support around this range.
For Q1 2021, Netflix reported revenue of $7.2 billion, which was 24% higher on a YoY basis. For the same comparable period, the company’s paid membership growth was 13.6%.
It’s worth noting that in the last 12 months, the company has generated free cash flow of $2.4 billion. The key growth trigger for Netflix is new content. Robust cash flow generation is likely to ensure that content creation is aggressive.
Another important point to note is that Netflix has global reach. Big markets like India are still in an early growth stage. While competition is a headwind, the continuing transition from linear TV to streaming is liable to increase the addressable market.
On the flipside, new content development has been delayed due to the pandemic. A third wave of Covid-19 would likely further impact the release of new content. However, the stock seems to have discounted the concerns as it remains sideways to lower.
Newmont Mining (NEM)
Inflation is already a concern as interest rates remain artificially low. I believe that the Federal Reserve can hold back longer before the first-rate hike if there is another Covid-19 wave. This factor makes NEM stock an interesting gold mining stock to consider.
NEM stock has been sideways in the last six months. This looks like a good consolidation before the next rally. It’s also worth noting that the stock has an attractive dividend yield of 3.48%.
In terms of business fundamentals, Newmont has a rich asset base. The company expects to deliver stable production into the 2040s. Further, the company also expects to reduce the all-in-sustaining-cost to $800 to $900 an ounce by 2025.
Therefore, even with a stable production profile, the EBITDA margin is likely to expand. Higher gold price and lower AISC being the triggers.
From a financial perspective, Newmont reported free cash flow of $442 million for Q1 2021. This would imply an annualized FCF of over $1.7 billion. Further, the company has cash and equivalents of $5.5 billion. Therefore, Newmont has ample flexibility to sustain dividends and invest in maintaining the current level of production.
Valneva SE (VALN)
I believe that as new variants of Covid-19 dominate the headlines, the medical focus is likely to be on booster shots. This will provide a good opportunity for vaccine players that have been laggards when it comes to Covid-19 vaccine development.
VALN stock is attractive from this perspective as the third Covid-19 wave intensifies. Valneva has an agreement with the United Kingdom to supply 190 million doses of its vaccine.
In May 2021, the company participated in the world’s first booster trials in the U.K. Positive development on this front can take the stock higher. Valneva also has an ongoing discussion with the European Union for supply of its vaccine. This is yet another potential stock catalyst.
Beyond the Covid-19 vaccine, the company also has a pipeline of vaccines for Lyme disease and Chikungunya. Earlier this month, Valneva received Breakthrough Therapy Designation for its single-shot chikungunya vaccine candidate.
VALN stock therefore looks attractive, with more than one positive catalyst on the horizon. The current consolidation seems like a good accumulation opportunity.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.