By Rebecca Ellis
TUE, MARCH 31 2020-theG&BJournal-After the Coronavirus induced fall of the financial markets, all stocks are trading at a discount of 30-40% to their pre-crisis highs. We might argue that the pre-crisis level may have been exaggerated, but the current discounts are exaggerated. Everything is cheap. Now, what should one buy? In a recovery that certainly will come, quality stocks will most certainly do well: look at blue chips with good business models and strong dividends (for as long as the companies declare their dividends still). German companies are particularly hard hit and offer superb dividend yields. Please call us for suggestions
If you are more tech-savvy and interested in growth stocks, we have listed our current preferred choices below. Here are some examples out of many attractively priced stocks at the moment.
Quidel
Quidel is a diagnostics company focused primarily on infectious disease and cardiac injury. It is one of nine companies producing a test for COVID-19.
If you are a Star Trek fan, you might remember the tricorder — a handheld device that could scan and analyze the environment for unseen particles, delivering almost instant data. Quidel’s Savanna aims to be something a little like that: a portable tool that can be taken anywhere and quickly answer diagnostic questions critical for survival. It is a powerful new direction for a business that already has stable, steady, and profitable growth from diagnosing everything from flu to heart attacks. Quidel is set to gain from the Coronacrisis as its testing devices are in huge demand in the US where the pandemic is just starting.
Quidel is a young company trading at 33x earning which makes it pricey. However, it has substantial growth ahead
Amazon
While as much as 20% of the U.S. is expected to apply for temporary unemployment, Amazon is hiring 100,000 temporary and permanent employees to meet the demands of its e-commerce business. The logistics capabilities that the company has expanded in the last few years, including its own delivery-to-the-door service, are key to meeting the needs of communities staying home in the midst of the COVID-19 pandemic.
Amazon has always been a volatile stock. But in a world overcome by fear, uncertainty, and doubt (FUD), it is looking like the stalwart that it is. Down 11% from their 52-week high, Amazon shares are still up for the year and beating the S&P 500 by 20%. We think this is an excellent time to start a position or add to one if you aren’t already overallocated.
Netflix
It somehow seems wrong to point out that there will be some companies that will do well thanks to the COVID-19 pandemic, but it is true. Netflix is likely to be one of them.
With many people homebound, entertainment options are severely limited. What’s someone to do when going out is not a choice? Watching more Netflix is a choice many are making.
For example, as people were staying at home in Spain and Italy, Netflix app downloads spiked, with a 57% surge in Italy alone during early March. In fact, use of the internet in Europe has climbed so much that Netflix agreed to stop streaming in HD, cutting bandwidth usage by about 25%. This was at the request of the European Union. App downloads also spiked in Hong Kong and South Korea.
The question for long-term investors is: How many of the people signing up will stick around? Not all of them, probably, but many are thinking that enough will to provide quite a boost in total subscriber numbers. This was art of the reasoning behind Baird’s recent upgrade of Netflix stock.
Note that it is not all rosy for Netflix. It decided to shut down all production worldwide in response to COVID-19. While that won’t have an immediate effect on bringing new shows to the service, if it goes on too long, then it could affect the availability of new shows later this year.
Intuit
There aren’t many certainties in life. Fortunately for Intuit, taxes are among them. Even in the current turmoil, tax payments have merely been extended into July, not postponed entirely, and people will still need assistance preparing to file. That is where Intuit comes in. It helps with a variety of financial concerns, ranging from consumers paying their taxes through its TurboTax offerings to helping small businesses with their financial accounting needs through QuickBooks. In 2019, it served more than 50 million customers, generating USD6.8 billion in revenue, up 13%. It recently acquired Credit Karma for USD7.1 billion, which was a pricey acquisition but expanded the consumer finance segment addressable market from USD29 billion to USD57 billion, and we think this can help fuel future growth.
But how is the company faring in the recently tumultuous times? On Feb. 19, 2020, Intuit
reached USD 305.61 per share, and on March 23, barely a month later, it was trading around USD 193, a loss of around 37%, when the overall market had dropped 27.8%. An explanation for this loss might be its exposure to small businesses, which will hurt the most in a recession. However, it is hard to escape a beating in times in which stocks seem to be indiscriminately going down, and we think the recent drop has provided a buying opportunity for investors.
Intuit can weather this downturn, no matter how long it lasts. To start, it has a stellar balance sheet, with more than USD 2.2 billion in cash. Its business is built on an asset-light, high-margin, sticky model that is resilient in the toughest of times. Additionally, taxes are necessities, and 41% of revenue is generated through the consumer (TurboTax, Mint, etc.) segment. Small businesses might hurt in this time, but we think that utilizing accounting software (such as QuickBooks) is a necessity for them, and it’s one of the expenditures that is least likely to get cut back, making Intuit ingrained in the success of these businesses. The current time is unprecedented. We don’t know what will happen next, but we think Intuit has a strong moat and will continue to prosper.
Activision Blizzard
Gaming is one of the key pastimes while staying home and distancing. A relatively new and growing source of revenue for the company is the free-to-play model. Gamers can download a game and play for free, which attracts users. They can then make in-game purchases — which are high-margin sales — to enhance the experience. While the free-to-play model might cannibalize subscription or one-time sales of the game, management is betting that the expanded number of gamers and the portion of them that make in-game purchases will more than compensate for the cannibalization.
Activision Blizzard will benefit from brand recognition among gamers: Call of Duty, World of Warcraft, and Candy Crush are some of the most popular gaming franchises of all time, and Activision owns them. In 2020, we think that Activision Blizzard will benefit from social distancing requirements being implemented worldwide in response to the novel coronavirus pandemic. People are being forced to spend more time at home, and online gaming is likely to increase as a result. Akamai has had to deliberately slow downloads of video games during peak hours due to increased gaming-related traffic. Activision games have topped sales charts in January and February of this year. We believe that Activision Blizzard remains a good long-term investment opportunity.
Zoom
As its name suggests, Zoom Video Communications offers an internet-based video (and audio/chat/content) communications platform that is used around the globe. It’s certainly not the only platform for online telepresence. But if you’ve used it — and used its competitors — it feels like it should be.
The company has a Net Promoter Score of more than 70, which reflects very high satisfaction — something unusual for a technology platform, especially when you consider that among the many downsides of Zoom’s competitors are spotty connections and other glitches that tend to drive people crazy. Why is Zoom better? Because the platform was built from the ground up for video, unlike everything that had preceded it, from WebEx to Microsoft’s Skype to Alphabet’s Google Hangouts. Founder and CEO Eric Yuan experienced that frustration directly as an employee of WebEx. It and other platforms were initially built to share slides and PowerPoint documents during audio calls
and it shows. Even after WebEx was acquired by Cisco (Yuan eventually became corporate VP of engineering), there wasn’t a real focus on improvement. Yuan said he eventually became embarrassed to go to work because customers were never happy. That is something he has directly addressed at Zoom.
The Trade Desk
The Trade Desk stock has recently rolled back to early 2019 levels. That’s more than a year of amazing progress and performance wiped away, and it makes today’s price very attractive even if it does not look traditionally “cheap.”
If you have perhaps found yourself watching a lot of streaming television lately while social distancing, you know the opportunity. that lies ahead. The Trade Desk’s demand-side platform manages and adapts ad campaigns in real time, offering advertisers and agencies true transparency and no conflicts of interest. It is, as we write, a USD7.7 billion company serving a global ad market that is fast approaching USD1 trillion. While we can’t predict all the twists and turns of the months ahead, advertising is under no existential threat, and the continuing shift toward digital is inevitable.
Pomona Wealth believes that buying and holding stocks for three to five years sets you up for success
Rebecca Ellis is a Personal investment advisor, based in Zurich|rebecca.ellis@pomonawealth.com|pascal.crepin@pomonawealth.com.
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