Since the outbreak of the COVID-19 pandemic, technology stocks have been soaring. That’s because people across the world have become more dependent on devices such as mobile phones, computers, laptops, and tablets, among others, to stay functional. Many countries are announcing more stimulus packages to support their economies, and enable people to limit their activity in the second wave.
The S&P 500 and the Nasdaq Composite indexes have recorded a year-to-date increase of 12.6% and 36%, respectively, primarily on the back of the tech stock rally. Zoom Video Communications, Inc. (ZM) and Amazon.com, Inc. (AMZN) are two stocks that benefited the most from the pandemic. While the trend to work and learn remotely has helped ZM gain 593.2% year-to-date, increased online purchases have helped AMZN soar 72.9%.
While the technology sector has been one of the major beneficiaries of the pandemic-led changes, all tech stocks are not good picks. Intel Corporation (INTC), Stamps.com Inc. (STMP), and Overstock.com, Inc. (OSTK) are three such stocks that witnessed a price decline recently and may face trouble in the future because of their fundamentals. While INTC’s stock slid 21% since its second-quarter earnings on July 23rd, STMP’s and OSTK’s stock fell around 40% since August after rising 272% and 1,630% between January and mid-August.
Intel Corporation (INTC)
Technology giant INTC was founded in 1968 and has a market cap of $194.45 billion. It was the largest chip manufacturer in the world and dominated the semiconductor industry with its x86 chips. However, all is not well with the company. INTC is losing its share in the semiconductor market to competitors like Taiwan Semiconductor Manufacturing Company Ltd. (TSM), Advanced Micro Devices, Inc. (AMD), NVIDIA Corporation (NVDA), and QUALCOMM Incorporated (QCOM). According to Mercury Research, INTC’s CPU market share has gone down to 79.8% in the third quarter of 2020 from 84.2% in the third quarter of 2019.
As INTC struggles to launch its 7-nanometer (nm) node online, its revenue decreased 4% year-over-year to $18.3 billion in the third quarter. It was the highest revenue decline that the company witnessed in over five years. INTC’s data center revenue slid 7% to $5.9 billion, and net income fell 29% to $4.3 billion.
INTC expects its revenue to total $17.4 billion in the fourth quarter, down nearly 5% sequentially. For full-year 2020, the company has provided revenue guidance of $75.3 billion, which is up 4.6% year-over-year. But Wall Street analysts expect INTC’s revenue to decline by 5.8% in 2021.
INTC is rated “Neutral” in our POWR Ratings. It holds “C” for Buy & Hold Grade, “D” for Trade Grade and Peer Grade, and “B” for Industry Rank. It is also ranked #63 out of 86 stocks in the Semiconductor & Wireless Chip industry.
Stamps.com Inc. (STMP)
Established in 1996, STMP provides online shipping and mailing services. It offers Parcel Select, Media Mail, Priority Mail Express, Priority Mail, First Class Mail, and other mailing services. STMP is a one-stop postage service provider. It allows customers to print shipping labels and postage stamps; integrate orders from e-commerce platforms; and get discounts on mail services.
On November 5th, STMP reported its results for the third quarter. Its revenue rose 42% year-over-year to $193.9 million following increased adoption of e-commerce platforms due to the COVID-19 pandemic. Profit surged 243% to $3.83 per share. Despite such strong results, the company’s stock price declined 11.5% on November 6th and continued to fall on the COVID-19 vaccine announcement.
Once the COVID-19 vaccine is launched and people start returning to normalcy, STMP’s revenue could take a huge hit. The pandemic has seen the emergence of a large number of small businesses that mail products from home. Once the economy gets back on its feet and people start stepping out, the pandemic-induced demand for such services might fade.
STMP’s stock price has soared 120.11% on a year-to-date basis on the back of the pandemic. STMP has a price-to-earnings ratio of over 22, making it too expensive for most investors. Analysts expect its 2020 revenue to surge 27% and then slow down to only 5.5% in 2021. STMP’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Sell”, a “D” for Buy & Hold Grade and Peer Grade, an “F” for Trade Grade, and a “C” for Industry Rank. Within the 35-stock Internet – Services industry, it is ranked #25.
Overstock.com, Inc. (OSTK)
OSTK is an e-commerce firm that was established in 1997. It has a market cap of nearly $3 billion and sells second-hand as well as new products. OSTK’s offerings include accessories, apparel, watches, jewelry, bath products, bedding, furniture, and home décor, among others. Its subsidiaries include tZERO Group Inc. and Medici Ventures Inc., through which OSTK plans to launch financial apps using blockchain technologies.
OSTK’s revenue surged 111% year-over-year to $732 million in the third quarter, riding on a 20-fold increase in trading volumes on its tZERO blockchain platform. It reported earnings of $0.50 per share, compared to a loss in the year-ago period. The company’s stock price mirrored strong results and surged more than 880% year-to-date. The revenue growth is coming from cryptocurrencies and not from OSTK’s core online retail business. Cryptocurrencies have a history of being highly volatile, particularly bitcoin. In December 2017, bitcoin skyrocketed to $20,000 but declined 70% within a very short period. Hence, investors should avoid the stock from a long-term perspective.
Analysts also do not expect OSTK to sustain its current growth rate. They expect the company’s revenue to rise by nearly 72% in 2020 but only by 1.2% in 2021. The stock’s poor prospects are apparent in our POWR Ratings which gives it a Sell rating. It also has a “D” for Trade Grade, and Peer Grade and an “F” for Buy & Hold Grade. The stock holds an “A” in industry rank because its core business is online retail. OSTK is ranked #40 out of 59 stocks in the Internet industry.
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INTC shares were trading at $47.72 per share on Monday morning, up $0.27 (+0.57%). Year-to-date, INTC has declined -18.28%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Puja Tayal
Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles. More...
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