Top Stock Picks for a Post-COVID World
“Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds.”
This is taken from a recent article written by Morgan Housel of the Collaborative Fund. Morgan is a fantastic commentator on the macro-market and these two lines, in particular, really struck me as the perfect summation of what has happened on a global scale recently.
A little over four months ago, we entered a new decade riding on the coat-tails of the longest bull market in history — eleven years worth of growth and innovation. Then, in just a matter of weeks, the localized outbreak of a novel coronavirus in China spread to all corners of the world. From 44 confirmed cases in early January to over 2,500,000 at present, a particle that’s only a couple of microns big has ground normal life to a halt and, tragically, left hundreds of thousands of people dead in its wake.
The COVID-19 pandemic will go down as one of those epochal events in human history. Life as we know it has been destroyed in many ways. How long it persists is anyone’s guess really, but one thing for certain is that way in which we live our lives when we emerge from this pandemic will be very different.
So, as an investor, what companies do I think will stand out in this post-COVID world?
I’ll start out with the most obvious: Zoom Technologies and Slack. These two businesses have already benefited considerably from the rapid adoption of the home office with Zoom, in particular, seeing its user numbers jump from 10 million to 300 million in the space of just a few months.
I’d also like to add Atlassian as a more subtle beneficiary of the new era of working-from-home. One of the hidden challenges that many companies will face in a remote environment is the management of workflows and task lists. Atlassian already has a stellar reputation amongst the developer community in providing tools like Confluence, Jira, and Trello for managing these things online, and I believe we could start to see these solutions gain more widespread use as many businesses realise they don't need a physical office to function effectively.
Of course, the use of these tools will fall back somewhat as offices across the world slowly reopen, as will their stock prices in the short-term I suspect. However, the way that we work has now fundamentally evolved forever and we will continue to see increased use of these products as employers promote the cheaper and more efficient processes of remote working, while employees take advantage of better work/life balances.
Next, let’s consider a world where people will be spending most of their downtime at home too. Again, there are obvious winners in this space, namely the content streaming companies. My pick of these is Netflix — a company I have been invested in since 2003 and am still as confident in its future as I was back then. Again, Netflix has already seen the benefits of the pandemic with its stock up some 30% year-to-date, but streaming is not a zero-sum game. With first-mover advantage and the mindshare of more than 180 million people globally, Netflix will remain a stalwart of most streaming bundles. Speaking of streaming bundles, as more and more services come online, Roku stands to be a big winner too, allowing customers to have all their subscriptions in one place and making money from advertisements.
All of these companies will need the technological capabilities to scale their tools to a larger audience, and this is why I’m backing Amazon to thrive even more over the next few years. I know — picking Amazon as an investment is a no-brainer, but remember that in addition to its impressive e-commerce network, Amazon Web Service is the most robust cloud computing network on the planet. Its customers already include the previously mentioned Netflix and Slack, as well as other massive companies like Facebook and LinkedIn. Expect to see demand and, in turn, sales continue to rocket in the most profitable arm of the Bezos empire as the world continues to move online.
The next company is one that has long excited me, but the past few weeks have confirmed it as a necessity in the new world we’re living in. Teladoc is one of the largest providers of telehealth services in the world. You don’t need me to tell you why remote healthcare has suddenly become very important, but even after this pandemic subsides, I expect that people will be extremely hesitant to attend crowded doctor waiting rooms if at all possible. The company recently said that it is facilitating more than 20,000 appointments per day, twice the volume it saw in the first week of March.
Finally, I want to mention two other trends that I see emerging. In a recent study of the global impacts of COVID-19 by Deloitte, one of the ‘Big Four’ of accounting, increased spending on telecom equipment and IT security was highlighted as likely side-effects of the new era we’re entering. To take advantage of these, there are two stocks on my radar: Ericsson as the leader in telecoms and 5G adoption, and the PureFunds ISE Cyber Security ETF as a way to gain exposure to some of the companies leading the way in providing cybersecurity solutions to the world. Believe me, cybercrime is already one of the biggest risks for the modern company, and as more processes move online, demand for services to mitigate against it will only increase.
You’ve probably noticed that all of the companies I’ve mentioned here looked like great investments prior to the outbreak of coronavirus. Two of them, Amazon and Netflix, have already been life-changing investments for many people across the world, myself included. Others like Slack and Zoom have seen recent bumps in share price due to the pandemic. However, it’s important to remember that, as long-term investors, we’re trying to capitalize on an entirely new era for business. All of the companies mentioned above have products and services that were already innovative but have suddenly become much more important in the new world we’re living in.
Change happens very slowly, and then all at once. Before the Financial Crisis of 2008, the largest public companies in the U.S. were mainly oil and gas, with a few banks and utilities thrown in too. Before the COVID-19 pandemic, it was the Big Tech giants like Apple, Amazon, Facebook, and Google that ruled the roost. Over the next decade or so, as the world recovers from this crisis, what companies do you think will form part of this “new normal”? If you have any companies that you would add to this list, I’d love to hear them.
And remember, if you want to find out more about any of these companies, simply visit their stock pages in MyWallSt, where our analyst team has a full write-up on the reasons we like them as long-term investments.
Stay safe out there!