In 2020, many “coronavirus stocks” emerged as COVID-19 forced drastic changes in how we work and live. With colder weather ahead for much of the United States, it’s worth thinking about which companies and industries may be poised for strong performance or outperformance into 2021 as consumers increasingly hunker down indoors.
PPE makers and other companies that help in the pandemic fight can be part of an “ethically responsible” investing strategy
Winter is coming. That’s not exactly news, and perhaps not something everyone enjoys thinking about, especially as the world continues to grapple with the COVID-19 pandemic. But as 2020 has illustrated for investors and traders, many “coronavirus stocks” emerged as COVID-19 forced drastic changes in how we work and live.
With colder weather ahead for much of the United States, it’s worth thinking about which companies and industries may be poised for strong performance or outperformance into 2021 as consumers increasingly hunker down indoors. At the same time, there are opportunities to pursue an ethically responsible investing strategy.
“The pandemic has disrupted and rearranged the way people are consuming health care and many other products and services,” said Michael Kealy, an education coach at TD Ameritrade. “We don’t yet know what a post-COVID-19 world will look like, but its investors face a very different market dynamic.”
Here are a few stocks, industries, and sectors worth keeping an eye on into the new year. Some have weather-related storylines, such as exercise equipment companies, and some don’t, like pharmaceutical stocks.
Although health clubs and many other businesses have reopened in recent months, many people may still prefer to work out at home over the winter and beyond, which could signal further demand growth for companies that make exercise bikes, treadmills, and other equipment that fits in consumers’ basements.
Nautilus (NLS) and Peloton Interactive (PTON) are a couple examples in this sector. Shares have surged in 2020. With PTON, it’s not just about staying fit. It’s also about human interaction, as the company’s exercise bikes include Wi-Fi-connected TV screens that allow users to join virtual exercise sessions.
Peloton has about 1 million subscriber members, many of whom are “extremely devoted” and likely to continue their subscriptions, Kealy pointed out. The company went public in September 2019, and although it has yet to post a profit from a full-year perspective, for the quarter ending in June 2020, PTON announced earnings of $0.27 per share.
“We’re seeing a rapid shift toward exercising at home, and it’s being driven in part by people seeking social connections,” Kealy explained.
The doctor will see you now? Yes, thanks to digital health companies that virtually connect patients with medical professionals without in-office visits. Teladoc Health (TDOC), which in August announced a plan to purchase Livongo Health (LVGO) for $18.5 billion, enjoys expectations for rapid growth in this industry, according to Kealy.
A few other companies offer COVID-19 health care angles: Honeywell (HON), for example. The big conglomerate, which was recently added to the Dow Jones Industrial Average ($DJI), makes ventilation systems used in offices, warehouses, and other facilities that increasingly must provide cleaner air and otherwise make workplaces healthier and safer.
People everywhere are “masking up,” generating rising demand for surgical masks, face shields, gowns, and other personal protective equipment. Top PPE manufacturers and vendors include HON, 3M (MMM), DuPont (DD), and Owens & Minor (OMI).
Thanks to its “Post-it” notes and other ubiquitous consumer products, MMM is a particularly recognizable name. As Kealy noted. “With 3M, there’s certain degree of trust in the brand name, and it’s involved in many different safety-related products.”
Ongoing efforts to produce coronavirus tests and vaccines are generating daily headlines, and dozens of publicly traded pharmaceutical stocks and biotechnology stocks are directly or indirectly involved.
The most closely watched stocks in this sector in recent months include Moderna (MRNA) and Gilead Sciences (GILD). GILD makes a coronavirus treatment, remdesivir, that’s already being used against the novel coronavirus. Over the summer, MRNA reported positive early results from a virus vaccine study and plans to expand its clinical trials to a much bigger group soon.
And then there’s Regeneron (REGN), which has had an up-and-down-and-up year, surging again to the upside in early October, when it was announced that President Trump received an experimental REGN monoclonal antibody treatment after testing positive for COVID-19. But REGN’s CEO acknowledged that, since the treatment is still in its experimental phase, it’s not yet available for wider distribution.
Among other pharma and biotech names, AstraZeneca (AZN) and Pfizer (PFE) have offered encouraging signs about the potential for a COVID-19 vaccine to be ready by the end of 2020.
Among other companies, Quest Diagnostics (DGX) conducts much of the country’s coronavirus testing. Some testing-related stocks were under pressure as the companies struggled to keep pace with accelerating demand. But a company like Quest could see opportunities if stepped-up hiring in certain industries leads to a boost in testing demand.
DGX “doesn’t have a monopoly in coronavirus testing,” Kealy said. “But it does have a ‘wide moat,’” he added, referring to a competitive advantage that, in part, reflects the lab company’s affiliation with UnitedHealth Group (UNH), one of the largest U.S. health insurers. Quest processes about 25% of U.S. COVID-19 testing volume and in July joined UnitedHealth’s “preferred lab” network, Kealy noted, citing CFRA research.
From the way we shop and exercise to the way we spend our health care dollars, COVID-19 has shown its power to disrupt things—if not permanently, then certainly in the near future. As many investors know, disruption typically means winners and losers, opportunities and risk. As the thermometer starts its annual trip downward, perhaps it’s time to explore whether current trends can add some warmth to your portfolio.
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Bruce Blythe is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.
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