The news in recent weeks that there has been progress with multiple vaccines has investors hopeful that soon, there will be an end to the pandemic. Companies such as Moderna and Pfizer have announced that its trials were over 90% effective in stopping the spread of COVID-19. It appears that it is only a matter of time before one of the potential vaccines gains approval to be released, but what should investors do?
The positive news regarding vaccines caused a sell-off in many of the biggest winners this year which have benefitted from the work from home (WFH) economy. Companies like Zoom, Teladoc, and Peloton dropped significantly on the news. Zoom fell almost 25% while Teladoc and Peloton both dropped by roughly 16%. These companies have grown considerably this year as the products and services which they provide became essential as the places shut, and people avoided high-risk areas such as the doctor’s office. Other companies that have been hit hard by the pandemic such as airline stocks gained over 20% and Empire Realty Trust popped 37% on the news. The question that many people have is what will happen to stocks when the vaccine is released and should they sell?
Perhaps, a vaccine being released is already priced in, or we will see another drop. However, nobody knows what the stock market is going to do in the short-term. Famous investor Peter Lynch stated that “trying to predict its direction over the near term is an exercise in futility”. Rather than trying to predict what the market is going to do, focus on individual companies.
Should you sell your WFH stocks?
Often the best thing to do is nothing. Although this sounds boring, the most costly mistake that investors will make is selling a particular stock. There are limited downside and practically unlimited upside with stocks. Even if a vaccine is released, not only will the vaccine rollout take time, COVID-19 has changed how people and businesses operate.
The pandemic has caused an acceleration in existing trends and has had a transformative effect on many industries. One of the most apparent winners is e-commerce, where penetration rates have had ten years of growth in 3 months. This has caused companies such as Etsy and Shopify to benefit and will most likely continue to in the years to come. The telehealth market is another that has been transformed. Teladoc CEO Jason Gorevic said in the Q3 conference call that the telehealth market has “accelerated the market by probably four or five years” and is here to stay as people become accustomed to virtual visits. One last example is cloud computing and has seen a rapid acceleration in 2020. Twilio is a beneficiary of this trend and surveyed over 2,500 enterprises. It found that the pandemic has accelerated 97% of companies’ digital communication strategy by an average of six years.
Buy the recovery play?
On the other hand, many companies have been hit by the pandemic causing revenue and stock prices to plummet. A large number of these are struggling to survive, and a question mark remains over whether they will be able to weather the storm, particularly in industries such as aviation, cinema, and entertainment. Undoubtedly there are opportunities, but investors would need to be confident that the company will survive and reach or exceed pre-COVID-19 levels to make a profit. This requires a greater level of understanding and a more in-depth analysis that many retail investors may not have the ability or time to carry out.
After scrutinizing individual companies, it is clear that many of these WFH stocks are in a better place than at the beginning of 2020. As long-term investors, a sell-off such as that caused by positive vaccine news is an opportunity to buy a great company at a discount. Many of these companies that have had significant run-ups will continue to compound for many years. Investors should think twice before offloading their WFH stocks and buying recovery plays. A long-term buy and hold strategy is key to beating the market consistently over many years.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.