The Covid-19 pandemic has created a new “tech wreck”. But unlike the broad selloff at the end of 2018, this downturn has been more selective. Some stocks that looked like they were a little overbought have seen their share prices lowered.
In some cases, there was a legitimate reason for this. However, in other cases, it was likely a result of profit-taking disguised as something else. That’s the nature of a crisis. It gives investors the cover to do what they wanted to do anyway. But once investors start to sell, it can trigger a herd mentality.
And that’s when savvy investors start to look for opportunities. Because as Warren Buffett famously said, “Be greedy when others are fearful.” Tech stocks will lead the way back when the pandemic is over. Because if there’s one thing this moment in time is teaching us, it’s that we’re not going to be less dependent on technology. Businesses aren’t going to be doing less digital advertising. Consumers aren’t going to do less e-commerce.
But the fundamentals still matter. That’s why one of the common traits of many of these companies is that they have rock-solid balance sheets.
Quick Links
- Facebook
- Amazon
- Alphabet
- Fastly
- Nvidia
- Intuitive Surgical
- Teladoc Health
#1 - Facebook (NASDAQ:META)
The case for Facebook (NASDAQ:FB) comes down to simple math. Prior to the social distancing initiatives caused by the Covid-19 pandemic, the combined usage on the company’s Facebook, WhatsApp, Messenger, and Instagram platforms was approximately 6.5 billion. That gives Facebook 449 million more users than YouTube.
Facebook is a social media giant. But a daily active user is not a statistic that Facebook can monetize. Getting on the social network is free.
And that’s the beginning of the bearish case against Facebook. The company generates 30% of their ad revenue from the film and travel industries. These are two of the hardest hit segments in the Covid-19 pandemic. The tech giant also generates a significant amount of its ad revenue from small businesses, some of which may not come back when the pandemic is over.
And that decline in ad revenue is why analysts from Cowen & Co are predicting that Facebook will have net revenue of $67.8 billion in 2020. That would mean Facebook will report negative year-on-year revenue for the first time since the company was founded in 2004.
But unlike other economic downturns, Facebook didn’t experience an organic decline in demand. It didn’t lose demand to other competitors. It had demand ripped from it. And that’s why it’s likely that the company will see demand come back when businesses begin to come back online.
Facebook stock is down over 15% in 2020.
About Meta Platforms
Meta Platforms, Inc engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.
Read More - Current Price
- $585.25
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 37 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $638.00 (9.0% Upside)
#2 - Amazon (NASDAQ:AMZN)
It may seem strange to see Amazon (NASDAQ:AMZN) on this list of stocks to buy. The stock was not immune from the selloff that impacted the entire market. However, the stock has rewarded investors who “bought the dip” and is up over 20% for 2020.
Can the stock continue to rise? It sure looks like it. AMZN stock initially took a hit on the expectation that their cloud service business, Amazon Web Services (AWS), would be negatively impacted by the sheltering in place initiatives that are sweeping the nation. However, the company’s core e-commerce business should more than take up the slack. The company has already hired 100,000 new workers to meet increased demand. And the company recently announced plans to add an additional 75,000 workers.
In fact, in an unprecedented move, the company is taking small, almost unnoticeable steps to discourage consumers from buying quite so much online. And in an effort to help manage the influx of orders for grocery delivery, Amazon has also introduced waitlists for both Amazon Fresh and Whole Foods.
The company’s stock is not cheap. But analysts are nonplussed. One reason that Cowen gave Amazon a $2,700 12-month price target is the strength of the company’s earnings growth as well as their margins which just get better and better with Amazon’s unprecedented economies of scale. If the company were to reach the $2,700 mark, it would be a 24% increase from its current level.
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $224.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 42 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $243.00 (8.0% Upside)
#3 - Alphabet (NASDAQ:GOOGL)
The last of the FAANG stocks to look at is Alphabet (NASDAQ:GOOGL), the parent company of Google. The argument for Alphabet is similar to that for Facebook. Although ad revenue is down in light of reduced business spending, demand is expected to return.
In the meantime, Alphabet is partnering with Apple (AAPL) to incorporate contact-tracing technology in each company’s mobile operating systems. The two companies power nearly every mobile device in the world. The idea behind the project is to use application programming interfaces (APIs) to help inform public health officials. It may feel a little invasive, but it’s been proven to work at flattening the curve in other countries, most notably Singapore.
The tools would be built into smartphones and use existing Bluetooth technology that tracks if phones have passed within a certain distance of one another. Users would have to choose to participate. But if they do, and they test positive for the virus, the tools will be able to search location data to determine if they passed close enough for long enough to risk a potential exposure within the 14-day incubation window. Anyone determined to be at risk (assuming they opted in) would receive a notification on their individual device.
The two companies plan to release the first version of the software in May.
About Alphabet
Alphabet Inc offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, devices, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
Read More - Current Price
- $191.41
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 35 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $206.69 (8.0% Upside)
#4 - Fastly (NYSE:FSLY)
Fastly (NYSE:FSLY) is a content delivery network (CDN) that is part of a group of stocks that are outperforming the market. In the last month, FSLY stock is up nearly 70%. And it’s pretty easy to understand. As more people are sheltered and working, in place, traffic over the world wide web has increased. Working from home means more video chats.
Fastly went public in 2019 and while it’s still not profitable, that could be changing faster than expected. The sudden mitigation efforts are accelerating a trend towards more internet traffic. This is being spurred by several factors including the growth of video content. This will only be enhanced by 5G technology. And so will the number of connected devices.
So what exactly does Fastly do? They provide businesses with an edge cloud platform that lets them deliver, secure and optimize their digital content. Companies are looking for low-cost IT infrastructure with fast access to data. Fastly fits the trend towards growing cloud adoption including the shift to a hybrid cloud as the primary deployment model.
This is creating a sector known as IAAS (Infrastructure-as-a-Service). And that’s a sector that is expected to reach $92 billion by 2023 (up from $19.2 billion in 2016).
Year-to-date Fastly is still down about 11%. But that more than 50% better than the -24% loss for the S&P 500.
About Fastly
Fastly, Inc operates an edge cloud platform for processing, serving, and securing its customer's applications in the United States, the Asia Pacific, Europe, and internationally. The edge cloud is a category of Infrastructure as a Service that enables developers to build, secure, and deliver digital experiences at the edge of the internet.
Read More - Current Price
- $10.08
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $8.55 (15.2% Downside)
#5 - Nvidia (NASDAQ:NVDA)
The bullish case for Nvidia (NASDAQ:NVDA) is that graphic processing units (GPUs) are about to get put to use in exciting new ways. As 5G technology becomes a standard, we should see advances in artificial intelligence, robotics, and autonomous vehicles, not to mention 5G mobile networks.
But the development of a 5G infrastructure was already lagging behind before the Covid-19 pandemic. However, NVDA stock has got another catalyst, gaming. 2020 was the year when many companies were bringing new gaming consoles to the market.
Although that may not happen until later this year, a lot of people are stuck at home. That is increasing demand, which I imagine will only increase as consumers receive their stimulus funds. This should create a catalyst for Nvidia who recently announced that their next generation chips are in over 100 new laptops. Not only can they handle the most demanding games, but they include features that make them ideal for those that find themselves working from home.
And Nvidia also had a strong balance sheet heading into the pandemic. At the end of last year, the company was posting an adjusted profit margin of 34% and net cash and equivalents was $8.9 billion.
There are reasons to be cautious. Recently, Bank of America analyst Vivek Arya reiterated his buy rating for NVDA stock and gave it a price target of $300.At the time that would have been an increase of more than 15%. But with the stock currently trading at around $295, there may be some question if the rally is over. Second, semiconductor stocks tend to be very cyclical. But for the rest of 2020 at least, NVDA looks like a solid stock to own.
About NVIDIA
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally. The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
Read More - Current Price
- $134.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 40 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $164.15 (21.9% Upside)
#6 - Intuitive Surgical (NASDAQ:ISRG)
There were caution flags about investing in healthcare technology stocks in an election year before the pandemic broke out. And in the midst of a pandemic that is seeing many hospitals cancel elective surgeries (which are their bread and butter), it may seem like an odd time to be recommending a company like Intuitive Surgical (NASDAQ:ISRG) a leader in robotic surgery.
The Covid-19 pandemic is unique in that it hasn’t destroyed demand; it’s just forcing it to be delayed. When our economy begins to reopen, hospitals will be eager to reschedule these procedures to shore up ailing balance sheets. And patients will be looking to take care of the procedures that they were forced to put off.
Investors seem to feel the same way, the stock is still down over 15% for the year. But at one point the stock was down over 30%. Sentiment is ticking up. And one thing you look for in any downturn is companies that have strong balance sheets. With no debt and nearly $6 billion in cash and equivalents on its books, plus an adjusted operating margin of 56% for 2019, Intuitive Surgical fits that description to a tee.
Intuitive Surgical is using that strong balance sheet to expand its reach. The company recently acquired Orpheus Medical, allowing it to expand into areas such as hospital data management and IT services.
About Intuitive Surgical
Intuitive Surgical, Inc develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally. The company offers the da Vinci Surgical System that enables complex surgery using a minimally invasive approach; and Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung.
Read More - Current Price
- $524.43
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $554.17 (5.7% Upside)
#7 - Teladoc Health (NYSE:TDOC)
Have you missed the rally on Teladoc Health (NYSE:TDOC)? The stock was going up before the pandemic, but it has now surged to a gain of just over 100% for the year. But this may be a question of being in the right place at the right time.
If you have flu-like symptoms, you don’t want to go to the doctor’s office and doctors would prefer you stay home, unless your condition worsens. But you may still need to be “seen” by a doctor. That’s where Teladoc comes in.
There are many risks to this stock. First, although the Trump administration is authorizing an expansion of telehealth services, this is not available in every state. And, even if a state does offer such services, there is a lack of doctors who are participating. In fact, in the state of Washington, doctors who are properly vetted can treat patients remotely even if they are not licensed in that state (they must be licensed elsewhere).
At this time, approximately 260 doctors have volunteered. However the vetting process is lengthy and expensive. It’s not clear yet if this will work out of not. And there’s also going to be a question of how well this idea will gain acceptance by patience. It’s one thing to avoid going to the grocery store. It’s another to allow an injury or illness to be diagnosed without actually seeing a doctor.
But, like many things, often times the best opportunities happen when investors have the audacity to believe in it.
About Teladoc Health
Teladoc Health, Inc provides virtual healthcare services worldwide. The company operates through Teladoc Health Integrated Care and BetterHelp segments. The Integrated Care segment offers virtual medical services, including general medical, expert medical, specialty medical, chronic condition management, and mental health, as well as enabling technologies and enterprise telehealth solutions for hospitals and health systems.
Read More - Current Price
- $9.44
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.24 (29.6% Upside)
Fear is one of the strongest, and least productive, emotions in investing. The herd mentality has done in many an investor. After two weeks of intense selling, many investors are realizing that the Covid-19 pandemic, like many crisis points before it, can be a buying opportunity. But that’s not true of every stock.
One thought that seems to be crystallizing is that our society will be more reliant on technology than ever before. Coming out of this pandemic, if there is an app for that, we will use it and stay safe in our homes for things like buying groceries and maybe even to checking in with our doctors.
The stocks that we have listed in this presentation include some familiar names, and some names that may be new to you. But they all look to be strong buying opportunities as we are coming out of this pandemic and for some time to come.
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