These Tech Stocks Could be the Real Winners of the Lockdown
Tech stocks in the work-from-home theme have rocketed this year with some producing returns of three and four-hundred percent…but is the easy money already made? How much higher can these stocks go and how do you find the best to buy?
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Following the Work-from-Home Trend in Tech Stocks
Nation, I’ve been watching the work from home trend for almost a decade. I started my own home-based business in 2013 and by the end of 2019, nearly one-in-ten Americans were working remotely.
Then COVID19 happened and this trend went into overdrive!
More than half the workforce was working from home during the height of the pandemic and economists at Harvard Business School estimate that one-in-five workers, about 20%, will continue working remotely even after things get back to normal.
That is a huge shift and to happen so quickly, it’s no surprise that work from home stocks are soaring.
But that creates two problems for investors. One, how do you find the best work from home stocks to buy and two, the prices on some of these have surged to just outrageous levels.
Case in point, Zoom Video Communications, ticker ZM, is up over 400% this year alone and trades for nearly 00-times on a price-to-earnings basis. Any way you look at this stock, there is no way to rationalize the value. Seventy-six times sales, 82-times book value.
And yet, the shares were able to rocket 45% after the most recent earnings release when the company reported a 335% increase in sales.
Nation, a lot of these stocks remind me of Amazon. Shares of the ecommerce giant have NEVER been cheap. I think last year at 72-times on a PE basis is about the lowest I’ve ever seen it. The shares have always looked ridiculously expensive and yet, it’s up 70% just this year.
Work from home is the future and these stocks will continue to grow revenue…but that still leaves us with trying to find the best of the group.
How to Find Tech Stocks in the Work at Home Trend
That’s what I want to do in this video; show you how to find the best work from home stocks, give you some fundamentals to watch and then reveal the three stocks I’m watching to buy.
I’ll be using the Stockcard.io platform, a great research tool I just found that has some features you won’t find anywhere else. Besides some of the investing tools we’ll use today, Stockcard makes it easy to analyze a stock because it takes all the financial measures like quick ratio and debt-to-equity, and then puts them in these easy-to-understand levels for growth potential, operations and valuation.
But investing in that kind of theme idea, the problem has always been how to find all the stocks in the trend. There just aren’t any stock screeners set up for this type of investing.
And it’s one of the reasons why I really like Stockcard as a research tool. I just click on Discover up here in the menu and then on this Featured tab which will show me all the stocks within different themes.
We see stocks in the COVID-19 testing theme, Electric Vehicles, here we’ve got the vaccine theme and scrolling down further, you see 75 stocks in that Work-from-Home theme. Now I don’t want to make this a Stockcard review, but each of these squares is a measure of how well the company is doing in four key fundamentals like growth, operations and valuation.
You can scroll through some of these or just click up here to see all in the group. We can look through each in the group. Here’s Fastly, ticker FSLY, one of the best picks of the year, up 485% since our March recommendation, and some solid long-term potential.
So Stockcard makes it easy to get your research started, setting up these lists, and then digging deeper into each company.
Three Stocks Making Remote Work a Reality
Our first work-from-home tech stock, $2.9 billion cloud storage leader Box Inc., Ticker BOX.
Box has kept growing from 2005 and from a cloud file storage provider into tools for workflow and organization management.
That’s a lot of what I like about Box, that innovation in product offering to become an all-in-one for management and organization of remote workers.
The company booked an 11% year-over-year increase in revenue last quarter and an annualized pace of 20% over the last three years.
The price-to-sales ratio of 3.75-times actually isn’t too bad considering some of the valuations in this theme and analysts have an average price target around $24.75 per share which would be a 30% return from here.
Now we’ll get back to the list of work-from-home tech stocks but I want to show you how I’m looking for these, how I’m narrowing the list.
First, of course, I’m looking for a connection with that work-at-home theme; a company benefitting from the shift whether it’s through connectivity, security or productivity. Most of these are going to be in that software applications industry within tech stocks.
I’m also looking for a competitive advantage though in the products. For example, in security, I looked at Zscaler’s unique cloud model for security versus that traditional hardware model when recommending it in November and then again in March around $58 per share. This was a big leap from some of the legacy server-based providers and shares of Zscaler have surged 197% in just the last few months.
So it’s not enough to throw a dart at all the names in this theme. That kind of random approach will give you some solid returns because the broader theme, that work-from-home trend, is going to drive growth for everyone in the group. That’s why I like this kind of theme investing. But to get those triple-digit returns, you really have to dig deeper and find the best of the best.
Our next tech stock is actually fairly cheap as well, $1.2 billion Avaya Holdings, ticker AVYA.
Avaya provides communications and contact center platforms for companies as well as other products and services. So where we saw Box was helping companies connect with their workers, Avaya helps companies and remote workers connect with their customers.
Shares of Avaya haven’t run as far as others in the group, only up 10% on the year, even though management was able to beat earnings expectations by 40% in the second quarter. This is a company trading at just 4.6-times trailing earnings and in a solid industry.
Something else I’ll look at when picking stocks to buy is this Short Interest. This is the percentage of shares available that are borrowed by short sellers, a good contrarian indicator, and you see here that over 20%, more than a fifth of the shares are sold short which is extremely high.
Analysts have a price target around $19 per share over the next year which would be about a 35% return on the stock from here.
We’ve still got one more work from home tech stock to highlight but I want to show you some of the fundamentals I’m watching to pick these stocks. Stockcard makes it easy to find each of these so we’ll just look at some of the most important.
I’ll usually start by looking at some of the operational measures like revenue growth in the last quarter and then the three-year trend. I’ll also look here in profitability and check out the Gross Profit Margin to see how it stacks up against the industry.
That Gross Profit Margin is the percentage of revenue left over after paying suppliers. This along with the Operating Profit Margin, which is the percentage of revenue left after paying operating costs, these are excellent measures for management’s ability to squeeze out profits.
This card for management effectiveness is also useful for ratios like the return on assets and return on equity.
For these types of growth stocks, I’m not usually looking much at valuations because they’re all going to be extremely high but I will check out the Analyst Price Targets to see what other analysts think of the shares.
Citrix Systems, ticker CTXS, provides virtualization software including virtual apps and desktops, exactly what remote workers have needed this year.
As you’d expect, the company reported a very strong second quarter, beating earnings expectations by 24% after beating by 48% in the first quarter. Management also provided higher guidance for the third quarter and I think this is one that just keeps going for decades as we shift into that remote worker model.
Besides that solid growth, management has done really well on improving profitability and posted an 85% gross margin last quarter, well above the industry average.
Analysts have an average price target at $164 per share, just 17% higher than the current trade, but I like this one for a very long-term investment.
Don't miss out on the work-from-home theme in investing and tech stocks that could surge over the next decade. Use Stockcard to start your research and find all the stocks in this trend.