WFH (work-from-home) stocks have outperformed the markets this year. The success isn't surprising given the fact that many employees are still working from home. WFH became the buzzword as offices globally were closed due to lockdowns amid the COVID-19 pandemic.
WFH stocks aren't the same as stay-at-home stocks. While there's a high degree of overlap between WFH stocks and stay-at-home stocks, there are some differences as well. WFH stocks are a kind of subset of stay-at-home stocks. Stay-at-home stocks are a much wider category and include companies like Netflix and Peloton that have benefited from people staying at home.
What are WFH stocks?
WFH stocks have benefited from people working remotely. WFH stocks include hardware companies. Many people had to buy hardware to make their homes work compatible. Enterprise software companies are also part of the WFH category. The demand for cloud computing has also surged this year due to remote working.
The success of cloud company Snowflake’s blockbuster IPO and the fact that even Berkshire Hathaway co-invested in the IPO illustrate the growing appetite for cloud companies.
Which WFH stocks to invest in
Zoom Video Communications, which came up with its IPO last year, is among the biggest benefactors of WFH. The stock has risen over 500 percent for the year. Cloud Communications platform Twilio is another WFH stock. So far, Twilio stock has gained over 180 percent in 2020.
Financial management software-as-a-service and human capital management software provider Workday is another decent WFH stock. Workday has gained around 36 percent for the year. Slack is a WFH stock and has gained over 18 percent for the year.
California-based cybersecurity company CrowdStrike is a WFH stock. Cybersecurity has been a concern for many companies as more employees work remotely. There has been an increased demand for CrowdStrike. The stock is up over 175 percent for the year.
Okta is a cybersecurity company and a WFH stock. Okta has risen by over 94 percent YTD. Team collaboration software provider Atlassian Corporation is another WFH stock. Atlassian has gained over 60 percent this year.
Investors could even add companies like Amazon, Apple, Lenovo, Microsoft, Alphabet, and Alibaba to the list of WFH stocks. However, while employees working from home might have increased the demand for some of their products, they aren't WFH stocks in a strict sense.
Capitalizing on the work-from-home trend, Direxion launched its Work from Home ETF (WFH) in June this year. The ETF has given returns of 7.6 percent since its inception. The returns don’t look attractive given the returns from the broader markets. However, the ETF was launched when WFH stocks had already surged.
Now, the WFH trade and stay-at-home trade might have run its course. While U.S. stock markets surged to new record highs after the presidential election, the rally was led by sector rotation from growth and stay-at-home stocks to value and cyclical stocks.
Should you still buy WFH stocks?
Some of the WFH stocks, especially Zoom Video Communications, are trading at astronomically high valuations. There has been a lot of positive news about COVID-19 vaccine candidates from Moderna and Pfizer.
After there's a COVID-19 vaccine, we could see another round of sell-offs in WFH stocks. Many companies have signaled their intention to let more employees work from home even after the COVID-19 pandemic. While the WFH trade would lose its charm after a COVID-19 vaccine is available, the sell-off could be an opportunity to pick some of the beaten-down but fundamentally strong WFH stocks at attractive valuations.