The COVID-19 pandemic and the lockdowns that followed in the US and around the world has damaged several business sectors.
In the agricultural industry, farmers and companies that are involved in the agribusiness value chain have had to absorb steep losses as demand for their products has fallen over the cliff. From dairy farmers dumping their milk into lagoons to vegetables that served fast food outlets and restaurant chains being plowed back to rot in the soil, the story is the same.
The luxury goods and aviation industries are two of the hardest-hit sectors. With 31 million Americans on unemployment benefits, the focus of most families is on basic survival needs. Tourism and travel have ground to a halt worldwide, leading to a 95% drop in air passenger traffic. Even though other sectors have equally felt a negative impact, some industries have had it more than others.
In looking at three possible stocks that would benefit from reopening of the economy, it is essential to look at the phased reopening structure to see what businesses would be allowed to kick off immediately, or would have to reopen later. Companies that would be allowed to resume their activities are those whose businesses and work environments fit the criteria set by the government for the first phase of reopening. Furthermore, companies that may be deemed essential to the functioning of the economy may get priority over others.
The US government has proposed a three-phase approach for reopening the economy. Under the Phase 1 guidelines, businesses that allow large scale gatherings of people would remain closed. Companies that can ensure sufficient distancing of workers within their environment and when such workers return to their residences would be allowed to open. Businesses that would enable socializing or traveling that is non-essential would remain closed.
Here are three stocks that could benefit as the US economy reopens.
a) Tesla (NASDAQ: TSLA)
Tesla Inc is one stock that has shown formidable resilience in the last two months that the COVID-19 pandemic ravaged the US. Not only did it manage to post some stellar results in terms of vehicle sales, but its share price has been able to ride the stimulus wave pretty strongly. Elon Musk had never been a fan of the lockdowns, and this week, he stared down the Alameda County authorities in declaring that the biggest electric vehicle plant would reopen. Getting support from the US President, Musk seems to have triumphed as Alameda County has in a tongue-in-cheek manner, indicated that it would allow Tesla to reopen if it could put in place public safety procedures. A video has circulated showing that Tesla has provided on-site accommodation and transportation with social distancing, enabling it to meet the phase 1 reopening criteria.
Tesla Weekly Chart: May 24, 2020
Technically speaking, Tesla was in an uptrend before the outbreak of COVID-19 in the US stalled this momentum and forced an 88.6% retracement. It resumed the uptrend on a bounce from this level. However, the progressively lower peaks (February 2020 and April 2020) seem to suggest that the upside may have stalled and may be due for a correction before another leg higher.
With Tesla’s plants ready to go once more, the company will aim to beat its targets, having met the price estimates of the last 12 months as set by a team of 30 analysts polled by CNN Money.
b) Workday (NASDAQ: WDAY)
When the economy reopens, some things will change forever. One of those things that will change forever is the way people work. The COVID-19 lockdowns have only gone on to show that working from home on a large scale is possible. Remote work is, therefore, going to get more accessible, and more firms will adopt this work pattern going forward. Companies that sell products and services that form the infrastructure for remote work are companies worth investing in. Many of them did not suffer the kind of steep drops that companies in the luxury goods or tourism ends of the market suffered. Those that did are already on their way up. Workday seems to fit the bill of a company positioned to benefit from the growth of the remote workplace. Also, you can take out a cash advance to get the additional capital to invest more in such companies.
Workday Inc offers enterprise cloud solutions for use in human resource management. Some of its software products include software for financial management, business analytics, and various critical business functions.
The company’s 2018 full-year revenues came in at $2.82 billion, up by 31.7% over the 2017 figures. It upped this figure to $3.63 billion in the 2019 full-year results which were announced in February 2020, representing a 28.5% growth over the previous year’s numbers. The operating loss of $502.2 million represented 13.8% of revenues, an improvement over the 2018 full-year loss, which was 16.4% of revenue.
WDAY Monthly Chart: May 24, 2020
Workday’s Chief Financial Officer Robynne Sisco provided upbeat forward guidance for 2021 in the earnings call, projecting that subscription revenues would top $3.755 billion with the first quarter pulling in $873 million. The company is already attracting the attention of institutional players. Viking Partners recently acquired a 1.67% stake in the company, totaling 2,461,978 shares.
A look at the long-term chart for Workday shows that the company’s stock is picking up after the dip experienced in February and March 2020 due to the bearish COVID-19 market reaction. Post COVID-19 work requirements should translate into extra opportunities for the company if it can strategically position itself to capture an expanding remote work market.
c) Novavax (NASDAQ: NVAX)
World Health Organization (WHO) experts believe COVID-19 may have come to stay and the human race would have to deal with sporadic epidemics, just like HIV and several other viral ailments. Being able to co-exist with such pathogens depends on the development of either an effective treatment or a vaccine. Novavax is a pharmaceutical firm that is in pursuit of the latter: a vaccine candidate for the prevention of new COVID-19 infections.
On May 13, the company got a substantial boost in this regard. Novavax Inc, which had as good as hit rock bottom on the long-term chart, saw a 112% rise in its stock price after the Coalition for Epidemic Preparedness (CEPI) gave the company a $388 million cash injection to develop NVX-CoV2373, its vaccine candidate for COVID-19. A second vaccine, Matrix-M adjuvant, which works to boost the antigenic response of the human immune system to NVX-CoV2373, will also be produced in larger quantities.
The company reported a better-than-expected earnings surprise, with a loss per share of 58 cents as opposed to the consensus of 67 cents. Its Q4 2019 earnings also surprised analysts, with a loss per share of 108 cents that beat the consensus number of 113 cents.
Novavax Inc. Monthly Chart: May 14, 2020
These numbers show a company that is moving in the right direction. Novavax has had an almost 100-fold increase in the price of its stock compared to the industry: a whopping 900 to 9.2%. Yet its stock price is still relatively low at $38.30 per share.
These are three companies that could show growth potential as the US economy reopens and lives with the pandemic. The writer does not own any of these stocks and is not being compensated in any way to provide these analyses.