The Robinhood app has become the go to investment platform for the millennials. Best known for offering commission-free trades, Robinhood has caused quite a stir in the market with many investors on the platform favoring short-term trends While popularity of a stock definitely affects its price movement over a short-term, tricky market conditions call for a long-term approach for maximizing gains.
The current scenario could result in another correction this month owing to a number of factors. The election results, rapidly rising COVID-19 cases, and the uncertainty over the next fiscal stimulus are just a few of them. Therefore, it is critical to choose a stock based on its ability to withstand a temporary downturn and emerge strong based on fundamentals. The late October sell-off is a reminder that things are still risky and investors need to tread cautiously. At this stage, they should pick stocks that not only are popular, but also possess a business model to withstand or capitalize on the current health crisis.
Zoom Video Communications, Inc. (ZM), Berkshire Hathaway Inc. New (BRK.B), and Shopify Inc. (SHOP) are three such stocks that have innovative and almost recession-proof business models. The offerings of these companies will continue to be in demand in the “new normal.” While ZM and SHOP have flourished during the pandemic, BRK.B is great as a long-term ‘Buy’ due to its diversified line of businesses.
Zoom Video Communications, Inc. (ZM)
ZM is a technology company that offers video and online chat services enabled by a cloud-based peer-to-peer software platform. It is also used for telecommuting, distance education, social chats, and webinars. The pandemic-induced lockdown did wonders for the company as people across the globe flocked to ZM to replace in-person meetings with video calls. The company also plans to expand to online event hosting. More than 900 customers contribute over $100,000 to the company’s trailing 12-month revenue.
Recently, the company announced the launch of a feature which allowed end-to-end encryptions for free meetings to offer equally security features to paid as well as free accounts. In May, ZM also acquired Keybase to leverage its encryption technology. However, the encrypted call users wouldn’t be able to access Zoom’s cloud recording or live transcription.
During the second quarter that ended June 2020, ZM’s total revenue surged 355% year-over-year to $663.5 million. EPS for the quarter tripled to $0.63 from $0.02 posted in the same period a year ago. At the end of the second quarter, the company had nearly 370,200 customers, up 458% year-over year.
Analysts estimate its third-quarter revenue to be $639.35 million, indicating a 316.2% rise year-over-year. Meanwhile, EPS for the quarter is likely to surge 744.4% to $0.76. ZM expects its revenue for the quarter that ended September 2020 to be between $685.0 million and $690.0 million.
On a year-to-date basis, ZM has rallied 563.6% to close yesterday’s session at $ 483.70. During the past six months, ZM has soared 225.9%. As the social distancing norm is likely to continue due to the emergence of a second wave of COVID-19, videoconferencing will remain dominant, favoring ZM.
How does ZM stack up for the POWR Ratings?
B for Trade Grade
B for Peer Grade
B for Overall POWR Rating
The stock is also ranked #5 out of 54 stocks in the Technology – Services industry.
Berkshire Hathaway Inc. New (BRK.B)
BRK.B is a multinational holding company for multiple businesses and is managed by the legendary investor, Warren Buffet. Most of its subsidiaries are into insurance, however, BRK.B’s business is diversified including GEICO, Northern Santa Fe, Dairy Queen, Pampered Chef, Burlington, Fruit of the Loom, and NetJets. The company also has positions in various larger technology corporations. Bufett’s strategy of investing or acquiring businesses with a competitive edge has surely worked in BRK.B’s favor.
In October, Mitsui CEO Tatsuo Yasunaga revealed that they are likely to partner with BRK.B on new business and other areas leveraging their global network.
BRK.B’s total revenue during the second quarter that ended June 2020 dropped 10% year-over-year to $56.8 million due to the adverse impact of the pandemic. Meanwhile, its EPS climbed 89.5% to $10.88, primarily driven by $30 billion gains in investments, compared to $5.74 in the prior-year quarter. The company’s cash in hand increased to $146.6 billion at the end of the second quarter from $137.2 billion at the end of the first quarter that ended March 2020.
Analysts expect revenue for the third quarter that ended September to be $60.8 billion, indicating a 19.8% decline year-over-year. EPS is expected to drop 21.2% year-over-year to $2.42. However, the company’s ESP is expected to increase 26% next quarter, 16% next year, and at a CAGR of 23.3%over the next 5 years.
BRK.B lost 8.8% on a year-to-date basis to close at $206.17 yesterday. During the past six months, the stock jumped 13.1%.
It’s no surprise that BRK.B is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” for Peer Grade and a “B” for Trade Grade, Buy & Hold Grade, and Industry Rank. In the 59-stock Insurance – Property & Casualty industry, it is ranked #5.
Shopify Inc. Class A (SHOP)
SHOP is a Canadian e-commerce platform that has online stores and retail point-of-sale systems. The company offers an entire suite of services to online retailers that include payments, marketing, shipping, social media and customer engagement tools. Its services enable online businesses to process orders and payments, leverage analytics, source products, and access financing. As of 2019, the company had over 1 million businesses across 175 countries.
Now thousands of online retailers across the United States would be able to access hi-tech customer analytics powered by Faraday Personas & Insights on the Shopify app. The app now makes data science and machine learning accessible for organizations of all sizes.
SHOP’s revenue during the third quarter that ended September 2020 surged 96% year-over-year to $767.4 million. The company’s President, Harley Finkelstein, said, “The accelerated shift to digital commerce triggered by COVID-19 is continuing, as more consumers shop online and entrepreneurs step up to meet demand.” SHOP’s Merchant Solutions revenue for the second quarter increased 132% year-over-year to $522.1 million, led by Gross Merchandise Volume1 (GMV). EPS climbed 140.6% year-over-year to $1.54.
The consensus estimate for SHOP’s revenue for the fourth quarter ending December 2020 is nearly $904.56 million, indicating a 79.1% increase year-over-year. Meanwhile, EPS is expected to grow 190.7% year-over-year to $1.25.
SHOP surged 136.9% on a year to date basis to end yesterday’s session at $996.00. The stock also jumped 53.5% over the past six months.
SHOP’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with a “B” for Trade Grade and Peer Grade. Among the 35 stocks in the Internet – Services industry, it’s ranked #2.
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ZM shares were trading at $488.64 per share on Thursday afternoon, up $4.94 (+1.02%). Year-to-date, ZM has gained 618.17%, versus a 10.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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