The so-called “stay-at-home” stocks, which drove the U.S. stock markets to record highs earlier this year, have lost momentum since September. The sell-off deepened in November amid positive news about Pfizer’s and Moderna’s COVID-19 vaccine candidates. What are stay-at-home stocks and should you sell them now or hold for better returns?
The COVID-19 pandemic and the resultant lockdowns have increased the pace of digitization. In April, Microsoft CEO Satya Nadella talked about the rapid increase in digitization due to the COVID-19 pandemic. While some of the industries have been hit hard by the COVID-19 pandemic, many tech stocks rose to record highs.
What are stay-at-home stocks?
Most of the world faced lockdowns when the COVID-19 pandemic started. As people stayed indoors, the demand for some products and services increased. The products and services included the following:
- e-Commerce stocks like Amazon, Etsy, eBay, and Shopify have rallied this year. More consumers have shifted to online shopping.
- Home services stocks like Peloton and Netflix have also benefited as consumers' habits changed during the COVID-19 pandemic. Working out at home has replaced going to gyms for some people, while Netflix shows have replaced visiting movie theaters. Companies like Teladoc Health and DocuSign have also benefited from the shift in consumer habits.
What are WFH stocks?
A wide array of WFH (work-from-home) stocks have seen a surge in demand. The stocks include companies like Zoom Video Communications, Workday, Twilio, Atlassian, CrowdStrike, and Okta.
Does Jim Cramer like stay-at-home stocks?
Jim Cramer, the host of CNBC's Mad Money show, came up with the Cramer COVID-19 index, which has 100 stocks across various industries. While he turned bearish in stay-at-home stocks after Moderna’s vaccine news, he’s still positive on Zoom Video Communications, Teladoc Health, and DocuSign.
Now Covid-19 at Goldman Sachs... the other firm that feared the culture would be damaged if people didn't come back to work. The Stay at Home/Work at Home reality keeps hitting us in the face. Safety is what matters— Jim Cramer (@jimcramer) September 18, 2020
COVID-19 vaccine news
Both Modena and Pfizer have reported that their COVID-19 vaccine candidates are over 90 percent effective, which is a solid ratio for any vaccine. When the news about the vaccine candidates came out, there was a sell-off in stay-at-home stocks. Many of the stocks lost momentum after hitting all-time highs in September.
Stay-at-home stocks fall
Amazon, Netflix, Zoom Video Communications, and Peloton are down 12.3 percent, 15.6 percent, 30 percent, and 25 percent, respectively, from their 52-week highs. While stay-at-home and growth stocks have fallen over the last month, value and cyclical stocks have risen in what looks like a sector rotation. Is the sector rotation from stay-at-home stocks to value stocks here to stay or should you buy beaten down stay-at-home stocks now?
Should you buy, sell, or hold stay-at-home stocks?
The positive news about the COVID-19 vaccine candidates is somewhat negative for stay-at-home stocks. As more people start venturing out after getting the vaccine, we could see growth rates for some of the companies like Zoom Video Communications taper down.
However, here you need to look at stay-at-home stocks individually now. For example, Amazon’s growth rates might not fall much even after the COVID-19 pandemic is over. Peloton is another stock that should continue to see high growth rates. Investors can continue to hold stay-at-home stocks that have strong competitive positions and are reasonably valued.
Stay-at-home stocks like Amazon, Netflix, and Peloton look attractive after the sell-off and investors can continue to hold them. However, some of the stay-at-home stocks that have high valuations and face higher competition could be avoided now that a COVID-19 vaccine looks like a reality. These stocks include companies like Zoom Video Communications.