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All Contents © 2020The Kiplinger Washington Editors
By Brad Moon, Contributing Writer
| April 6, 2020
The COVID-19 coronavirus pandemic has been a disaster for the stock markets. While all sectors have suffered record losses, some have been particularly hard-hit and face an uphill climb to recover. For example, investments in airlines, cruise lines and hotels have their work cut out for them. But it might be an ideal time to pick up certain tech stocks.
Technology companies have long been fantastic buys for investors seeking out growth. That's because many of these firms either latch on to or even create emerging trends, then find ways of turning them into profits: think e-commerce, streaming content and cloud technology.
The same thing is happening now in the midst of the coronavirus outbreak. Several tech stocks are showing their worth as COVID-19 changes the technology industry. Some firms are already enjoying considerable upside amid various shifts, such as the implementation of "social distancing," and should remain aloft as long as those efforts remain in play. In many cases, the momentum is expected to continue as these technologies become part of a "new normal."
Here are 11 of the best tech stocks to buy as the coronavirus outbreak changes the way Americans live, work and play.
Data is as of April 5.
Market value: $158.7 billion
Cinemas, theaters and other entertainment venues have been shut down because of the coronavirus. As a result, people have been forced to look for ways to occupy themselves indoors.
Netflix (NFLX, $361.76) unsurprisingly fits the bill.
Netflix already has more than 60 million subscribers in the U.S. as of the end of 2019, and 107 million subscribers internationally. But that still leaves room for growth, especially on the latter front.
NFLX will release its latest subscriber numbers in April, but early data has shown significant increases in downloads of the Netflix app for mobile devices in countries being hit hard by the coronavirus. For instance, in early March in Italy, Netflix app downloads for iPhone and Android were up 57%, with Spain seeing a 34% increase.
Netflix has been one of the best tech stocks of the bear market as investors anticipate a subscription spike thanks to the coronavirus – with some of those viewers sticking around after the pandemic has passed. NFLX shares have recorded a nearly 12% gain in 2020, while the S&P 500 has declined by 23%. SunTrust analysts, for instance, estimate that paid subscriber additions will total 9.5 million in Q1, which is much better than the consensus expectation for 7.5 million.
Market value: $1.2 trillion
Microsoft (MSFT, $153.83) has several lines of business that could see an uptick as a result of self-isolation and people working from home.
For one, Microsoft has an opportunity to take advantage of the increasing number of employees who are being asked to work from home. This is the perfect time to push adoption of Teams, the company's group chat and collaboration software. With adoption comes more subscriptions of Microsoft 365 – the company's rebrand of Office 365 rolling out later in April. Indeed, the company is really pressing the point, offering a six-month free trial of Teams that includes some of its more impressive paid features.
Also, while Xbox One may have lost the current generation console war to rival Sony's (SNE) PlayStation 4, the company's Xbox Live subscription gaming network is seen as the online leader. Gamers use it not only for multiplayer competition, but for social interaction. Xbox Live has seen even heavier use than usual. At $9.99 per month for a Gold subscription, Microsoft could see a gaming division revenue uptick.
Meanwhile, while the economy likely will hamper IT spending on Microsoft's products, Morgan Stanley analyst Keith Weiss says MSFT is among tech stocks that are still in an enviable position. "While our (first quarter) AlphaWise CIO Survey indicates slower IT budget growth and potential for negative revisions, software is still an IT budget share gainer and Microsoft is exposed to many near-term remote work priorities," Weiss writes. "Microsoft remains a top vendor for the key secular trends in tech."
Courtesy Slack Technologies
Market value: $13.5 billion
Slack Technologies (WORK, $24.26) is among other tech stocks banking on the increasingly popular group collaboration software category. It's also the primary competitor to Microsoft's Teams.
Keeping teams organized and in communication is a critical tool – one that was projected to grow into an $18.3 billion market by 2026. Slack, while perhaps the first-to-mind name in the space, has been losing share to Teams, which has the advantage of being included with Microsoft's ubiquitous bundle.
The sudden move by many companies to have employees work from home is a big opening for Slack. It has name recognition, companies desperate for a way to keep all those newly remote employees on track, and a free version available. So far, so good.
William Blair analyst Bhavan Suri reiterated his Outperform rating (equivalent of Buy) on WORK shares after the company announced an acceleration in paid subscriber additions since mid-March that would indicate it's on its way to breaking its previous quarterly record for adds. "This is a change from what we heard during the last earnings call (which took place on March 12) when much of the increased activity was taking place in the free tier and was largely correlated with the countries at the center of the outbreak (Italy, Japan, South Korea)," he writes.
Slack also is throwing the kitchen sink at adoption, working one phone integration with RingCentral, Zoom … and even Microsoft Teams. If the company can prove its worth, many of the firms that have started to sign up might continue using Slack's software once the world returns to "normal."
Courtesy Zoom Video Communications
Market value: $35.8 billion
Zoom Video Communications (ZM, $128.20) is a leading provider of enterprise-strength video conferencing solutions. Zoom's offerings include not just video conferencing for large groups, but accompanying chat, collaboration, reporting and recording features.
That's perfect for the current coronavirus environment, in which remote employees need to be kept in the loop and productive, and in which many meetings simply need face-to-face contact.
That's why CEO Eric Yuan was recently able to claim that usage "has ballooned overnight," from 10 million daily users at the end of 2019 to more than 200 million by March.
ZM stock isn't an easy play right now, however. The company is up 88% year-to-date, sure, but it's also on a significant decline after various reports revealing security and privacy issues with its software. For what it's worth, Yuan released an apology and has frozen product development for 30 days to work on the software's various bugs; indeed, the company already has fixed its macOS installer.
If the company is able to quickly put out its technical fires – and the resulting PR fire – it might be positioned to enjoy a shift to video conferencing that lasts far longer than the coronavirus pandemic.
"We think Zoom's exceptionally easy to use meetings product has both enabled and benefited from a long-term secular shift towards working from home," writes Needham analyst Richard Valera, who rates shares at Buy.
Courtesy Cisco Systems
Market value: $165.6 billion
Cisco Systems (CSCO, $39.06) is another beneficiary of the push to have employees work from home. Its Webex platform is a popular enterprise option, and it has seen a big spike in usage as the coronavirus crisis has developed. Besides subscriptions for the application, Cisco also sells Webex devices, including connected whiteboards and video conferencing hardware.
Dan Eye, head of asset allocation and equity research at Roof Advisory Group, a division of Fort Pitt Capital Group, makes the case for Cisco seeing coronavirus upside:
"The measures being taken to control the outbreak of the coronavirus have forced many professionals, students and educators to work remotely," he says. "According to company reports, networking giant Cisco Systems is experiencing a massive spike in the usage of its Webex video conferencing platform. Estimates indicate that Webex traffic in some Asian countries has increased by 700% or more.
"While the Webex platform does not represent a large portion of Cisco's revenue stream, it should incrementally support its initiative of transitioning away from hardware with a greater emphasis on software solutions and recurring revenue streams."
The analyst community largely agrees with Eye. Eleven analysts have sounded off on the tech stock over the past month, with eight issuing Buy ratings versus just three Holds.
Market value: $949.1 billion
Amazon.com (AMZN, $1,906.59) is finding itself in the spotlight during the coronavirus crisis. That can have negative aspects — such as profiteers using the platform to gouge panicked consumers on products like hand sanitizer and protective masks.
But in an environment when people are hunkering down and reluctant to venture into stores, Amazon's online shopping provides a valuable service. In fact, the demand by shoppers has been so massive, that Amazon announced it is trying to hire an additional 100,000 new warehouse and delivery workers. That increased volume is going to result in higher revenue for the e-commerce division during the quarter, and might win Amazon some new customers.
Amazon's various devices are also proving popular during the coronavirus outbreak, and could see boosted adoption if the current situation is extended. For example, Kindle re-readers and e-books are a way to spend time. Echo smart speakers can be programmed to turn on lights and trigger other hands-free actions — ideal for reducing risk of contamination. And Ring video doorbells make it possible to interact with visitors at the front door without having to risk a personal, face-to-face encounter.
AMZN, which gets lumped in with consumer stocks and tech stocks, has certainly traded like the former this year, up 3% in 2020 versus steep losses for the broader markets.
Market value: $3.1 billion
With restaurants now shutting down their dining rooms in the U.S., and people increasingly reluctant to go to grocery stores, food delivery is poised to become a critical part of life under coronavirus in the U.S. That puts GrubHub (GRUB, $34.27) in an excellent position to grow its market share.
"We believe the impact from Covid-19 will provide a net tailwind," Oppenheimer analyst Jason Helfstein recently wrote about GRUB shares, which he upgraded from Underperform (equivalent of Sell) to Perform (Hold).
On March 10, GrubHub announced it would introduce no-contact delivery to the U.S. market. Already popular in urban centers (it has roughly two-thirds of the delivery market in NYC), the service is seen as a lifeline for residents who are tired of eating stockpiled beans and rice, while providing much-needed revenue for struggling restaurants.
Competitors including Uber Technologies' (UBER) Uber Eats service should also see a burst in food orders during the pandemic. The risk in Uber's case is that uptick in business is more than offset by a drop in ride sharing.
Market value: $11.4 billion
The push to keep distance between people has extended to the doctor's office. In-person visits put the patient at risk of potential coronavirus exposure in the waiting room. Medical staff are also at risk, and we can't afford to have them sidelined.
So-called virtual care or "telehealth" can be the answer. Using this remote technology in place of an in-person visit to the doctor's office was already on the rise. It can cut the cost of a visit to the doctor by half, and it has become popular in rural regions where patients may live miles away from their doctor.
Nina Deka, senior research analyst at ROBO Global, says virtual care providers including Teladoc Health (TDOC, $156.21) have "laid the groundwork to enable remote doctor visits."
"This means when people aren't feeling well, they can video conference with a physician from their home, thus minimizing further spread of infectious disease to other patients or healthcare workers in an already crowded emergency room."
Teladoc recently announced that "the company is experiencing unprecedented daily visit volume in the United States as the novel coronavirus continues to spread globally." That amounted to 100,000 virtual visits for the week ending March 13, a 50% spike over regular volume.
TDOC shares have jumped 87% in 2020, putting it among the best tech stocks on the market this year. Deutsche Bank analyst George Hill recently lowered his price target on Teladoc from $194 per share to $179, but he maintained his Buy hold, writing that a recent survey indicated "sustained higher levels" of telehealth utilization even after the coronavirus outbreak has subsided.
Market value: $18.1 billion
Twitter (TWTR, $23.09), as a platform, has always shown signs of excellence during times of crisis, when getting information to people in real time is critical. It's also a popular platform for social interaction.
The coronavirus pandemic is tailor-made for Twitter. People are looking for information on a life-or-death situation that can change by the minute. They're looking for ways to vent about actions that have been taken — or inaction. And they're bored and looking for ways to interact with other humans, without having to risk a face-to-face conversation. This heavy use is why Twitter is one of the social media platforms the World Health Organization is most active on, making it a key outlet for coronavirus updates and advice.
Twitter user engagement almost certainly will be up this quarter, and it seems likely the social media platform is going to gain users as well. That said, so far, TWTR shares have been a disappointment among tech stocks, underperforming the S&P 500 40% to 27% since the bull-market peak.
But Goldman Sachs analyst Heath Terry thinks TWTR has fallen too far, and that opportunity is brewing here.
"We believe as new/returning users see the value of the platform, many will stay as we've previously seen in more localized crises, creating future inventory that Twitter will be able to better monetize as the company invests in its ad technology through the crisis," he writes, upgrading the stock from Neutral to Buy.
Courtesy Citrix Systems
Market value: $17.3 billion
Citrix Systems (CTXS, $141.33) is an American software company known for its desktop virtualization software. Citrix Workspace is especially popular in enterprise settings. Centralized servers store all the actual data, while users have their complete virtual desktop — including applications and access to that data (although it is not stored locally). They can run Workspace on virtually any operating system and any device.
This company's technology was already valued for data security, reduced IT costs, employee flexibility and business continuity.
In a crisis like the coronavirus pandemic, customers who have deployed Citrix Workspace are able to continue operating as before, with employees working from home as easily as they could work from their desk in the office.
Citrix might not see much additional uptake during the current crisis, as IT departments might be reluctant to undertake any new deployment projects. However, in the post-coronavirus environment, expect companies to take measures to ensure continuity going forward. And that could mean CTXS selling a lot more licenses.
Analysts are certainly enthused, issuing six Buy ratings versus just two Holds over the past month.
Market value: $7.5 billion
Workers who are suddenly forced to work from home are often faced with a technical challenge: how to exchange large files when their email client has size restrictions. Digital images, presentations, applications and especially anything with video in it can result in massive files that simply can't be emailed.
So how do you get them to team members?
Dropbox (DBX, $17.96) has become the go-to in these situations. Using Dropbox, users can easily upload massive files for secure online storage, then invite others to download them. The free tier offers basic capabilities, but with paid subscriptions, users get more features including up to 2TB of storage, and automatic syncing of files between a device and the cloud during editing. In addition, Dropbox has been busy in recent years, adding integration with popular remote collaboration and work applications such as Zoom and Slack.
Look for Dropbox to see increased usage of its free tier during this period of large-scale working from home. This mass "trial" might make DBX one of the best tech stocks to benefit from this shift, as it could pay off with a round of paid subscriptions to Dropbox once the crisis is over. That's likely why investors have only allowed DBX shares to drop by 2% so far during this bear market.