Navigating markets through the pandemic
Updated: May 18, 2020
Ever since COVID-19 struck Wuhan, then gradually made its way around China, the negative impact that it would have on financial markets was consistently speculated. It started off with closing factories and laying off workers, thus affecting multinational corporations, like Apple, who’ve set up multiple centres for manufacturing in the country. A large number of analysts looked at this as a short-term issue, which would self-correct itself within a few months.
Yet, here we are. The DJIA (a standard index that is generally used as a measure of how the US economy is performing as a whole) dropped from 29398.08 points to 19173.98 points – a 34.8% drop – in 5 weeks. For your reference, the last time the index fell this badly was during the bursting of the real estate bubble in 2007 when the Dow Jones fell by 50%. But it took nearly 1 and a half years to fall that low. Things look grim. Footsie, NIFTY and almost every major index? Crashing. If you’re an investor, you’d typically look at holding short positions instead of long-term investing – everything is terribly uncertain. However, there are still some sectors and stocks that are drastically outperforming every market. They, against all odds, are generating profits for shareholders – plausibly generating profits for you.
This is the more obvious one. Netflix (NASDAQ: NFLX) closed at $439.17 on 16th April and is currently at its highest price ever. The reason for this is fairly obvious – an increase in the sedentary lifestyle that people lead due to the lockdown preventing them from working and spending time outside. More people subscribe to Netflix (its source of revenue) and the profits of the company increase. Investors’ confidence in this very simple relation drives the price per share of NFLX up and is one of the top options to invest in.
Disney (NYSE:DIS) does not seem to be the safest option at the moment. Full disclosure, it underwent a fall from $141.02 on 2nd February to $85.98 on 15th March. This fall may make it seem unappealing, but investors believe it to be an underrated growth stock ready to break out of its price ceiling and shoot upwards. Disney Plus (Disney’s streaming service) bought Hotstar and entered Indian markets. Furthermore, it also released in the UK and multiple countries in Europe after March 24th. The growth of its markets and its audience, and the demographic it’s catering towards, looks quite favourably upon the growth of its stock price.
The Amazon Behemoth
Amazon is one of the best stocks to get in on right now – hands down. Following the worst quarter and falling to nearly $1676.61 on the 12th of March, it’s now broken through all price ceilings and shooting upwards – currently at $2408.19 on 16th April. Yes, it may seem too late, but I believe that you could invest in Amazon and sell it off at a later time and closing the deal with sufficiently fatter pockets.
Firstly, in continuation with the streaming services mentioned before, Amazon Prime Video is really taking off during this lockdown for all the same reasons as Netflix. The Amazon Fire TV Stick revolutionized streaming and, according to Techcrunch, had upwards of 30 million active users by the end of 2019 alone. Prime Video is estimated to generate $1.7B in revenue annually, which is admittedly miniscule compared to Amazon’s total revenue, but is a number that is highly likely to increase over this lockdown and may thus help in shooting up share prices just a little bit.
Secondly, the advent of Amazon Web Services and its increased global consumption will help in increasing Amazon’s share prices overall. Just AWS alone generated $35B in 2019 and with an increased application of cloud computing, is definitely something that can push up Amazon stock.
How Video Chatting Platforms play in
Zoom was the platform that had it all. It was used everywhere, from online classes in the US to conversations between friends during this quarantine. However, due to the legal complications it ran into, that’s all gone to bust. It was on its way to historical growth, its stock price shooting up by nearly 100% in less than a month, and now investors are selling off stocks because of rumours about governments banning this platform. Zoom potentially exiting the market brings in other competitors, to be further discussed.
First, Microsoft Teams. This has already been the platform of choice within India and is likely to become the platform of choice across several other countries. Admittedly, Teams is not a major source of revenue for Microsoft (NASDAQ: MFST) – although such data isn’t publicly available, it is quite certain that it doesn’t generate more than 2% of overall profits for the company. However, analysts believe Teams is truly set to grow. It has a little over 44 million DAU currently. With a potential decreased use of Zoom, which had over 200 million daily meeting participants, Teams may be set to take off. Teams’s increased utilisation of Office 365 applications for collaborative work amongst participants is leading to growth within corporations as well. It is through these add-ons – the Office 365 Suite (which has a little over 215 million users) and Microsoft Azure (their cloud computing service which is currently growing at 64% and generated $11.4 billion in revenue in 2019) – that MFST stock is poised to grow.
Secondly, LogMeIn’s GoToMeeting is something of an undervalued stock. It’s been at a consistent stock price of around $85 since December 2019 (with a fall to $71 in March before bouncing back to the same price), but it has fairly strong fundamentals. It was an industry standard for office conference calls before the advent of Zoom, and there’s a chance that it may again become the choice platform to handle corporate video calls (seeing the negative press surrounding Zoom and its alleged security concerns). Unlike Microsoft, GoToMeeting is a major source of revenue for LogMeIn and its growth will definitely reflect onto the growth of LogMeIn’s stock. Although analysts advise against investing in LogMeIn immediately, it is definitely a stock to put on your watch list.
Author : Akhil Vajjhala