Since the coronavirus from China got rolling in February, the search term “coronavirus stocks to buy” has gained significant notoriety. It seems everyone and their dog is looking for the stock to benefit from the virus outbreak.
Some industries are natural candidates: video streaming, gaming, food delivery, at-home exercise, funeral homes, etc. Others aren’t so easy to spot. So, where do you start?
New York technology investors Ark Investment Management believes that innovation gains traction during tumultuous times. I would guess we would all agree we are experiencing significant tumult at the moment.
“During the worst financial crisis of our lifetimes, innovation gained more traction than most investors had anticipated. Companies offering faster, cheaper, more cost effective, and creative products/services gained significant share,” CEO Catherine Wood wrote March 17.
“During the GFC [Global Financial Crisis], Software-as-a-Service and online retail were prime beneficiaries. As technology budgets were cut by 20-30% in and around 2008-09, for example, during its worst quarter Salesforce.com chalked up a 20% increase in revenues. At the same time, while retail sales were falling, Amazon delivered 14% growth during its worst quarter.”
As Wood states, she founded ARK Invest to provide investors with innovation-focused, actively-managed portfolios that act as hedges against passive investment strategies.
In these difficult times, these 10 disruptors are not only some of Ark Invest’s top holdings but also stocks to buy that I’ve recommended to readers since the beginning of 2019.
On March 22, news hit that some of the automakers, including Tesla (NASDAQ:TSLA) and General Motors (NYSE:GM), were stepping up to the plate to help the country battle the coronavirus. They’ll be making ventilators to help patients breathe.
While it’s not known how long it will take Elon Musk and company to get its assembly line set up to make these machines, I’m sure his company is up to the task. That being said, like a vaccine for the coronavirus, it will likely take Tesla months to get its production facility set up for ventilators.
However, Wood wouldn’t have put a potential $7,000 stock price on Tesla earlier this year if she didn’t think Musk had the innovation chops to be successful at whatever tasks she thinks the electric vehicle maker needs to tackle.
In November 2019, I argued that Tesla stock would soon hit $400. It did that and more, hitting a 52-week high of $968.99 in mid-February before coming crashing down in March’s massive coronavirus correction.
However, despite losing a big chunk of its market capitalization in the past month, it still trades over $400. Once the world gets through this and the inevitable recession that follows, I don’t see Tesla’s share price climbing to four digits.
Square (NYSE:SQ) is the third-largest holding in the ARK Innovation ETF (NYSEARCA:ARKK), ARK Invest’s largest ETF with more than $1.8 billion in total assets. It’s also the largest holding in the ARK Fintech Innovation ETF (NYSEARCA:ARKF), an ETF that gives investors exposure to fintech innovators like Square and many others.
Square is part of Financial Innovation Now, an industry group that also includes PayPal (NASDAQ:PYPL), Intuit (NASDAQ:INTU), Stripe and other non-bank finance companies. The group believes that it can get any relief from the federal government into the hands of small businesses much faster than traditional banks.
“Small businesses are not well served by traditional financial institutions, nor will existing federal small business loan programs deliver funds soon enough,” the industry group stated in a letter to Congress. “Any federal small business loan program must leverage digital advances in the marketplace to ensure that stimulus can reach those business most in need.”
Not only is Square working to ensure many of its small business customers survive the coronavirus, but it has also gained conditional approval from the Federal Deposit Insurance Corp. to open a bank in Utah in 2021 called Square Financial Services.
While the short-term prognosis for Square isn’t good due to its exposure to small businesses, long-term moves, such as setting up a bank, will push SQ stock higher over the next three to five years.
Early in March, Digiday published an article that suggested Roku (NASDAQ:ROKU) — the video streaming platform that’s lost 43% of its value year to date through March 20 — is considering getting into original programming as a way to sell more advertising on its ad-supported Roku Channel.
A Roku spokesperson denied it had any plans to get into original programming in an email to Digiday.
The last time I wrote about Roku stock in early March, I said it was a great buy under $100. It then proceeded to fall to $60 on March 17. However, in the past week, it has recovered nicely, up 50%, including a 17.5% gain on March 23.
Needham analyst Laura Martin reiterated her buy rating and $200 target price on March 23, which had a lot to do with Roku’s big gain. Martin favors Roku stock over Netflix (NASDAQ:NFLX) because it is cheaper than Netflix at 6.2 times enterprise value versus 7.8x enterprise value for NFLX stock.
Further, the analyst believes Roku’s balance sheet is stronger than Netflix’s. Not only that, because Roku has an ad-supported model versus Netflix’s subscription model, during this period of self-isolating and social distancing, Roku is also experiencing usage increases that are tied to ad fees, while Netflix doesn’t benefit in any way from increased viewing hours.
As I stated in early March, as long as the average hours streamed per account keeps moving higher, so too will Roku’s advertising revenues, and that’s what will drive ROKU stock higher.
2U (NASDAQ:TWOU) started its first partnership with the University of Southern California in 2009. Since then, it has expanded to more than 70 universities offering more than 70 graduate degree programs. 2U funds the upfront development, the university provides the content, and the two share the revenue generated from the online program.
It seems simple enough.
However, the company doesn’t make money or generate positive free cash flow. So, despite being able to provide uninterrupted graduate education at a time when many people are forced to stay inside, investors continue to speculate that 2U won’t hang in there long enough to find a pathway to profitability.
Venture capitalist Fred Wilson recently discussed why online learning could become the way for teachers to educate their students.
“We are leveraging two technologies that have come of age in the last ten years; collaborative documents (google sheets) and videoconferencing (zoom). And we are using project-based learning in a small group setting which has always been one of the (the most?) powerful teaching/learning models,” Wilson wrote March 23. “The question I am wondering about is once I teach this subject this way, will I ever want to teach it any other way? I think maybe not.”
Investors tend to look at businesses like 2U from the perspective of the student. But what about the teacher? I agree with Wilson. I’d much rather teach a class from my home office than commute to the university’s campus. It’s a far more efficient use of my time.
As 2U continues to expand its platform beyond graduate degrees, both teachers and students will flock to its programs if the experience is a good one. Evidence suggests it is.
Back in September, I made the case that Splunk (NASDAQ:SPLK) had a much clearer pathway to profitability than Wayfair (NYSE:W). Since then, SPLK stock, with some significant volatility in between, has gone sideways. Meanwhile, Wayfair has lost 70% of its value.
While you might think it’s strange to compare an online retailer of home decorations and furniture to a provider of cloud-based data analytics, both businesses provide their products and services via the internet. Indirectly, that makes them competitors.
During the coronavirus, it has become evident that certain businesses are better prepared for business disruption. At the moment, virtually all white-collar employees are working from home. Splunk’s Data-to-Everything platform allows those employees to continue to ask the tough questions surrounding their businesses at a time of distress.
“Every business wants to know the cost of their decisions. Splunk moved to make its pricing more transparent so that its customers get better outcomes at a reasonable price,” I wrote in September. “To me, this suggests Splunk’s ready to take the next step in its growth. And as part of this growth process, deliver GAAP profitability for its shareholders.”
In early March, Splunk reported good fourth-quarter results. However, investors weren’t enamored with its guidance for fiscal 2021. Its stock fell on the news.
Splunk management is calling for $2.6 billion in revenue in 2021 — a 10% gain over 2020. Given revenues grew 27% in the fourth quarter and 31% for the entire year, the outlook seems conservative.
As companies increase the use of artificial intelligence and machine learning in their businesses, Splunk’s platform will continue to attract more new customers. In 2020, it signed up more than 450 new customers. I don’t see why it can’t do more than that in 2021.
As it’s still not making money, I wouldn’t bet the farm, but the coronavirus outbreak illustrates the need for Splunk’s cloud-based platform.
I noticed something interesting the other day while I was looking for quality bourbons to buy. I did a Pinterest (NYSE:PINS) search for the word “bourbon” and all kinds of interesting pictures came up. That part about Pinterest most people already know.
However, what really struck me, was that many of the articles the pictures came from weren’t from March 24, 2020, but from 2019 and earlier. It occurred to me that Pinterest has become an excellent way for publishers to get older content in front of potential subscribers, etc., which means it has become a superb advertising vehicle for brands looking to remain in front of the consumer.
I know contractors who use Pinterest to come up with renovation ideas. It seems everyone, including myself, are using the social media platform, except those looking for coronavirus information. Pinterest’s Community Guidelines ban harmful medical misinformation. Considering how much news coverage the virus gets, Pinterest has become an oasis for people overloaded with COVID-19 stories.
I’ve been a fan of PINS stock for some time. In November, I suggested that Pinterest was a steal below $19. As I write this, it’s trading around $13.40, down 33% year to date through March 23.
If you look at Pinterest’s Q4 2019 results, you will see that virtually every financial metric was extremely positive in the quarter. Global ARPU was up 15% to $1.22, U.S. revenue was up 36% and international revenue jumped 202%. In 2020, it expects revenues to grow by at least 33% to $1.52 billion with adjusted EBITDA at the breakeven point.
Of all the social media platforms, Pinterest seems like a no-brainer to benefit from the coronavirus.
The coronavirus correction has hurt all businesses. It doesn’t matter if you are Latin America’s leading e-commerce platform. Since hitting a 52-week high of $756.48 in mid-February, MercadoLibre (NASDAQ:MELI) has lost 36% of its value.
While it’s not a massive holding in the ARK Innovation ETF — MELI stock is the 34th-largest holding at a weighting of 0.26%, you’ll notice that Amazon (NASDAQ:AMZN) is not included — it says a lot about the company’s position as a Latin American innovator.
Regions such as Latin America are the growth areas of the global economy. They might be emerging, but they are developing fast.
In January, before the major correction took hold, InvestorPlace’s Josh Enomoto selected MercadoLibre as one of his seven tech stocks to buy based outside the U.S. Josh argues that the company is becoming much more than just an online marketplace. Its payment processing service is one newer business that comes to mind.
In the fourth quarter, Mercado Pago, MELI’s off-platform payments processing vehicle, generated a total payment volume (TPV) of $4.7 billion, 176% higher year over year, excluding currency. Also, its mobile wallet and asset management products are doing well.
As Josh pointed out, e-commerce adoption in Latin America is increasing. Take advantage of MELI stock’s retreat to buy some of its stock. It has plenty of growth ahead of it.
That’s especially true if it becomes the next PayPal.
As I write this, Nvidia’s (NASDAQ:NVDA) stock is up almost 17% on March 24, thanks to an upgrade from Needham analyst Rajvindra Gill. The analyst upped his rating on the chip stock to “buy” from “hold,” suggesting that its GPUs and artificial intelligence capabilities will benefit both the company and the medical community in this time of crisis.
What caught my attention about the analyst’s comments was the fact that out of 21 companies in the Semiconductor Index (SOX), only Taiwan Semiconductor (NYSE:TSM) has a better net cash position.
“During this uncertain time, superior balance sheets remain supreme,” Gill wrote. “Nvidia has a net cash position of $8.9 billion ($10.9 billion of cash/investments minus $2.0 billion debt) or $14.34/share. Of the 21 companies in the SOX … the only company with a higher net cash position is TSM. ”
I’ve been a fan of NVDA stock for some time. Last June, when it was trading at $150, I said it was a buy on the dip. Today, at $250, I still think it’s a buy.
While the analyst is thinking about how Nvidia can help the healthcare sector, I’m thinking about how it can help gamers get more performance for a better gaming experience. As the coronavirus carries on, this will become a compelling selling proposition.
Go to Google News and enter the word “telemedicine,” and you get a whole lot of stories about the relatively new form of medical treatment. The company leading this charge is Teladoc (NYSE:TDOC), the No. 1 direct-to-consumer telehealth provider in the U.S., according to J.D. Power’s 2019 U.S. Telehealth Satisfaction Study.
One of the things we’ve learned through the coronavirus outbreak is that sick people can be treated outside the traditional medical space. You don’t have to go to the doctor’s office or the emergency department of your local hospital to get a helpful diagnosis.
On March 13, Teladoc issued a press release that stated its daily virtual visits had increased by 50% over the previous week, bringing the number of virtual medical visits to 100,000 over seven days.
“We are seeing more patients and more of those patients are experiencing upper respiratory issues,” said Lew Levy, MD, chief medical officer, Teladoc Health. “As we saw during the flu epidemic of 2018, a community’s healthcare system can become overwhelmed and virtual care can help provide needed relief.”
If America wants a better healthcare system, companies like Teladoc are a big part of the solution. Like most online tech businesses, Teladoc has to do some more growing before it becomes profitable. That’s my biggest concern about Teladoc.
However, the coronavirus is showing that telemedicine is a legitimate tool in the healthcare toolbox. I was on the fence earlier this year, but now I’m a believer. This is one disruptor that seems like one of the most promising stocks to buy now.
Amazon recently announced that it would add 100,000 roles to keep the e-commerce giant delivering to all those self-isolating at home.
Amazon is generating record business for essential items such as toilet paper and other household items. Because of the coronavirus, it is having a March like never before. And most importantly, it’s coming at the expense of other online marketplaces.
While other businesses are folding, Amazon is ramping up, a sign that it has handily won the global e-commerce battle. Add the company’s AWS and advertising businesses to the company’s overwhelming lead in e-commerce and you have a business that most likely can’t be stopped.
Under $2,000, AMZN stock is a big buy. Need I say more?
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