In March, the stock market took a beating as the coronavirus became a full-blown pandemic. Businesses shuttered, supply chains broke down and millions of Americans lost their jobs within a matter of weeks. As a result, the market fell more than 30% from its record high in February.
The market as a whole has since recovered from its March lows. That’s due to a number of factors, according to Brian Sterz, an investment advisor and portfolio manager for Miracle Mile Advisors. Among them are steps taken by the Federal Reserve to lower interest rates and inject the market with more cash, as well as the federal government’s decision to provide an unprecedented stimulus package to companies and individuals. The general belief among market experts, Sterz said, is that the recession will be deeper, though shorter, than initially expected. That cautious optimism is reflected in today’s market.
Even so, many industries, such as travel, energy and food services, are still hurting and will likely struggle to rebound for quite some time. On the other hand, certain industries have not only survived the turmoil but are also thriving. “Investors have recognized that the world has changed and have [homed] in on investment themes playing out in today’s COVID reality,” Sterz said.
Some Stocks Are Thriving During The Pandemic
“There are a few sectors that are outperforming the S&P 500 right now, which in most cases means they’re not down as much year-to-date as the overall market,” said Arielle O’Shea, investing and retirement specialist at NerdWallet. The biggest standouts, she said, are health care, information technology, consumer discretionary spending and consumer staples. “All of these make sense when you consider where consumers and businesses are spending their money and time these days — industries like e-commerce, biotechnology and software are propping up those sectors.”
Though success is relative, given the state of the market, there are a handful of stocks that are performing very well, even by normal standards. Grufity, an online warehouse of comprehensive financial data and charts, released a coronavirus “Drag & Boost” index that measures the economic impact of the pandemic on stocks. According to the index, companies that have done particularly well have seen their stocks grow more than 50% since the start of the pandemic.
Here’s a closer look at some of those top-performing industries and the key stocks that have benefited.
Work From Home (ZM)
One of the biggest lifestyle shifts that took place as a result of the pandemic is the move to remote work. Many businesses that are able to operate remotely now allow employees to avoid the office and work from the safety of their homes.
This change requires companies to rely on special technology to keep communication flowing. “The focus has been on Zoom Video Communications Inc., which has been the high-profile winner here,” said William Patalon III, founding editor of Money Map Press and co-author of “Contrarian Investing: How to Buy and Sell When Others Won’t and Make Money Doing It.” Zoom (ZM) stock was already on the rise well before the pandemic hit. But the explosion of work-from-home setups amid the coronavirus concerns made Zoom a household name. As of December, Zoom had about 10 million active users. By the end of April, there were more than 300 million people on the platform. The stock is up 136% year-to-date.
Other remote communication stocks that have been on the rise over the past couple of months include Slack Technologies (WORK), a business messaging platform, and Teladoc Health (TDOC), a telemedicine and virtual health care company.
And this may not be a temporary situation, Patalon added. Surveys show that going forward, companies plan to let more of their employees work from home.
Online Retail (AMZN)
Nonessential businesses across the country have been barred from in-store operations while strict social distancing measures are in effect. Others, while still open to the public, have been depleted of high-demand items. Consumers have turned to online retailers for both essential purchases and general shopping.
Amazon (AMZN) is one company that’s been able to not only keep up operations but also fill the now-massive demand for online deliveries. North American sales were up 29% year over year, according to its first quarter earnings report. The retail giant also experienced a boost from increased usage of its cloud-based software by employers, making it a uniquely coronavirus-proof company. Shares are up nearly 28% for the year.
Unfortunately, Amazon’s success is thanks, in part, to some questionable practices. The company has been criticized for forcing employees to work in unsafe conditions that have exposed some to the coronavirus. One worker recently died of the virus.
Similarly, Walmart (WMT) was already big enough to survive several months of decreased revenue. However, it also has been able to capitalize on increased e-commerce, especially online grocery shopping. Like Amazon, Walmart has been ramping up hiring, positioning the company to take over even more market share as smaller companies that aren’t able to weather the pandemic go out of business.
Online Streaming (NFLX)
With social distancing in effect, Americans now have to entertain themselves at home. As a result, companies that deliver entertainment streaming services are poised to benefit. “Firms with a significant library of relevant content at a relatively low cost to the consumer, such as Netflix, will likely benefit the most,” said Will Reese, head of equity research at UMB Bank.
Indeed, digital streaming powerhouse Netflix (NFLX) has seen an upswing in its subscribers and stock value. According to Reese, revenue is expected to grow 23% in 2020 and 18% in 2021. The stock is up more than 33% year-to-date.
Other digital content providers have experienced an uptick in stock value as well. For example, Roku (ROKU), which produces a line of digital media players, has held strong despite a temporary dip in stock value after some advertisers canceled contracts in light of the coronavirus. The company expects to report significant revenue for the year.
Like digital content, Americans are also spending a lot more of their time playing video games while stuck at home. “Firms with high-quality portfolios of video games, such as Activision, stand to benefit from this stay-at-home trend,” Reese said.
Activision Blizzard (ATVI), which produces massively popular video games, such as Call of Duty, raised its earnings outlook for the year due to strong trends in various titles and more people engaged in playing video games as they stay home during the Covid-19 crisis, Reese said. Activision sales were up 21% year over year in the most recent quarter, while the stock is up 26% year-to-date.
According to data from The NPD Group, spending across the entire video game industry increased 35% year over year in March. Other video game companies that benefit from the trend include Electronic Arts (EA), Take Two Interactive Software (TTWO) and Zynga (ZNGA).
As Americans hope for good news regarding a treatment or vaccine for COVID-19, biomedical stocks have seen a run-up in prices. In fact, biomedical companies in the race to develop a COVID-19 vaccine or drug have grown over 100% since January, according to Grufity data.
Gilead Sciences (GILD), in particular, stands out after seeing promising early results with remdesivir, an antiviral drug initially designed to treat Ebola. Gilead, the target of a 2019 lawsuit over royalties filed by the Trump administration, has seen its stock rise nearly 20% for the year.
Moderna (MRNA) recently received $483 million in federal funds for its vaccine development, which also helped boost the sector. Other promising companies that could benefit from breakthroughs related to a COVID-19 treatment include Novavax (NVAX), Inovio Pharmaceuticals (INO), IBio (IBIO) and Regeneron Pharmaceuticals (REGN).
Should You Invest In These Stocks Right Now?
Seeing these stock prices spike following the market downturn might seem like an exciting opportunity to get in on the action. However, just because a stock is performing well now doesn’t mean it’s a quality investment.
It’s important to consider what will happen when lockdown orders are lifted. Are these companies dependent on the current situation to thrive, or are they serving a need that will exist when we return to some semblance of normality? Have stock values reached their peak, which would mean buying high and at inflated prices, or are they projected to continue growing for years to come? Choosing the right stocks to add to your portfolio depends on much more than what’s happening right now.
That said, if you want to research potential investments that are outperforming the overall market or even growing during the pandemic, O’Shea recommended using a stock screener (typically offered through an online brokerage account) to compare the performance of various companies to a benchmark like the S&P 500.
And keep in mind how stocks fit into your overall financial plan. “In general, it’s best to keep individual stocks to 10% of your portfolio or less; the rest should be invested in low-cost index funds that allow you to diversify your portfolio across all sectors of the stock market, not just one industry or company,” O’Shea said. “While a company may be excelling in these circumstances, investments should be made with a long-term view, and diversification helps protect your portfolio from circumstances that have yet to come.”
Experts are still learning about the novel coronavirus. The information in this story is what was known or available as of press time, but it’s possible guidance around COVID-19 could change as scientists discover more about the virus. Please check the Centers for Disease Control and Prevention for the most updated recommendations.