Cases of COVID-19 are surging around the country. But this month, we saw a light at the end of the tunnel: drug makers Pfizer/BioNTech and Moderna announced that test results found their coronavirus vaccines to be 95% and 94.5% effective.
When Pfizer and BioNTech first announced their positive vaccine results earlier this month, stocks of companies that have been beaten down by stay-at-home orders (think, airlines and movie theaters) jumped. Shares of movie theater company AMC Entertainment, for example, surged 44% the morning of the news, while the cruise company Royal Caribbean Group rose 31%. Meanwhile, shares of companies that have benefitted from people leaving the house less, like Zoom and Peloton, fell sharply.
It looks like we still have months, at least, until a vaccine is widely distributed. But the market reaction to even some good news begs the question: is the great run of stay-at-home stocks over once life returns to “normal?"
How the pandemic has changed our behavior
Experts say that in some ways, the pandemic may have permanently changed our behaviors, so while while some stay-at-home stocks may suffer when restrictions are lifted, it won't be universal. We're ordering groceries from the comfort of our own kitchens, watching movies on our televisions and, for some, cutting out commutes entirely. People aren't likely to give all that up even when they’re able to.
As Sam Stovall, chief investment strategist at CFRA Research, based in New York City puts it simply: “People are inherently lazy.” And companies like Amazon, which has continued to see profits soar during the pandemic, will likely continue to benefit from this tenet of consumer behavior.
So don’t throw all your stay-at-home stocks out the window just because of market movements like we saw on Pfizer’s positive vaccine news. In general, it’s never wise for long-term investors to make knee-jerk investing decisions. Instead, you should focus on long-term potential, like earnings growth, Stovall says. (Of course, this can change if you’re in or nearing retirement, as you may be more focused on income than growth). If a stock is in your portfolio, it should be because it has good fundamentals.
“You don’t want to own stocks just because they’re hot stocks and the experts are talking about why you have to have them in your portfolio,” Stovall adds.
The long-term winners
It’s impossible to know exactly which companies will continue to thrive post-pandemic, and which will falter. But experts say there are some companies with stay-at-home products that are just hitting their stride.
Peloton, for example, may just be getting started. In a letter to clients earlier this month, Goldman Sachs analysts wrote that the at-home exercise company represents a “significant long-term opportunity,” as it's in early stages of creating new and expanding existing categories of connected fitness products. The analysts added that the opportunity has been permanently accelerated by the pandemic, and that the window for meaningful competition is rapidly closing. Peloton said in its most recent earnings announcement that it ended the quarter with more than 1.33 million subscribers, up 137% from a year earlier.
Zoom could be another post-pandemic winner. Even once the pandemic has passed, most companies still expect to see a fundamental change in their operations compared to pre-pandemic times, J.P. Morgan analysts wrote in a note to clients in early November. These changes include flexible work arrangements, less business travel and more teams that would rely heavily on remote collaboration. “We still look at the pandemic as a massive pull-forward in adoption that will benefit Zoom for many years to come,” the analysts wrote.
Sector-wise, telehealth is one area that has a ton of room to run, says Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Mich. Before COVID-19, only 13% of patients in the U.S. had had a digital appointment with their doctors, according to consumer research firm Piplsay. But as people were asked to remain at home, those appointments skyrocketed: in the last week of March alone, there was a 154% increase in telehealth visits compared with the same time period in 2019, the Centers for Disease and Control and Prevention found. While there are certainly times that call for an in-person appointment, experts say that, because of the convenience, people may not be quick to revert back.
“I don’t think that they’ve even begun to tap their full market potential,” Milan says of telehealth companies like Teladoc Health. “That adoption rate is, I think, going to continue to snowball.”
And the big winner: 5G companies, like Qualcomm and Verizon. These companies have been benefiting from so many people working from home, but even if workers go back out into the world, the 5G transition is here, Milan says. The term refers to the expansion of usable cellular frequencies to deliver increased bandwidth, faster data movement and the the ability to support more mobile devices, and it is likely to have a similar effect to what we saw in the late 90s in terms of innovation, he adds.
"I don’t mean the flashiness of the dot-com boom and bust, but specifically how the foundations were laid for a new way of technological life," Milan says.