Stay-at-home stocks like Zoom and PayPal are way down. Which ones are buys?

Posted: 7 February 2022 5:55 pm
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Here are 11 stocks that have fallen an average 66% since their pandemic-induced highs. Some may be busy now.

Many of the stocks that soared during COVID’s stay-at-home era have seemingly lost their luster.
Zoom (ZM), PayPal (PYPL) and Peloton (PTON), a few of the lockdown darlings that became investor favorites, have fallen considerably from the towering levels they reached in 2020 and 2021.
It may very well be the market reassessing what these stocks are really worth post COVID — as people return to work, gyms and in-person shopping, and these stocks drop back toward prepandemic levels.
Yet some of these stocks remain solid long-term investments, meaning now might be a good time to buy. Here’s a look to help you do your due diligence.

Pandemic winners and where they are now

Here are 11 companies whose stocks at least doubled from the end of 2019 to their highs, but have since returned to Earth.

StockPeakCurrent price% decline
Netflix (NFLX)$700.99 on November 17, 2021$410.52-41.44%
Zoom (ZM)$588.84 on October 19, 2020$143.80-75.58%
PayPal (PYPL)$310.16 on July 26, 2021$125.63-59.50%
Peloton (PTON)$171.09 on January 14, 2021$24.33-85.78%
Novavax (NVAX)$331.68 on February 9, 2021$88.52-73.31%
Moderna (MRNA)$464.85 on September 10, 2021$163.30-64.87%
BioNTech (BNTX)$464.00 on August 10, 2021$175.23-62.23%
Zillow Group (ZG)$212.40 on February 16, 2021$47.88-77.46%
Roku (ROKU)$490.76 on July 27, 2021$160.41-67.31%
Carvana (CVNA)$376.83 on August 10, 2021$151.57-59.78%
DocuSign (DOCU)$314.76 on August 10, 2021$119.27-62.11%

What happened?

For starters, the world reopened, and demand for products and services that benefited from remote work and stay-at-home orders has waned. Among other things, people have begun returning to gyms, restaurants and movie theaters.
Meanwhile, the highly transmissible Omicron variant has led to labor shortages from increased callouts, and ongoing supply chain constraints have led to shortages of everything from key components of cars to construction materials.

Some companies grew too fast

Companies like Peloton and Zoom have had to deal with the difficulties of growing exponentially during the pandemic, only to see growth slow dramatically as more people returned to gyms and work. There are still new customers, but they aren’t signing up at the rates they had previously.
In 2020, Peloton saw its connected fitness subscriptions grow 88% on extraordinary demand for its products. For the quarter ended December 2020, Peloton reported revenue of $1.1 billion, representing year-over-year growth of 128%. Its stock surged 421.05% in 2020.
But Peloton’s stock fell over 74% in 2021 amid increasing concerns about the company’s future growth prospects. The company saw demand for its at-home fitness products slow as many returned to gyms, forcing Peloton to slash prices for its exercise bike and tread.
Last month, Peloton halted production of its bikes and treads for a short time as supply outpaced demand. The stock recovered a bit Monday on potential takeover talks.
Similarly, Zoom’s stock soared 756.87% in 2020 to a high of $588.84 in mid-October on rapid customer growth. A little more than a month prior to its stock reaching this all-time high, Zoom reported quarterly revenue growth of 355% year-over-year to $664 million.
Zoom’s stock tumbled by over 47% in 2021 as growth tapered off with more people returning to work. In November 2021, Zoom posted its slowest quarterly revenue growth and its slowest pace of additions of new customers with over 10 employees.

Some lost investors as money flowed into sectors ravaged by COVID

Aside from company-specific issues, money also began to flow out of stay-at-home stocks as they topped out and into sectors that were hit hardest by the pandemic.
Energy was the worst-performing sector in the S&P 500 in 2020, producing a meager negative 37.3% total return, according to data from Visual Capitalist. Oil prices declined drastically in 2020 and increased efforts to transition to renewables put pressure on traditional oil and gas stocks.
The opposite was true in 2021, as soaring oil and gas prices lifted the sector. The energy sector produced the best total return of any sector at 47.7%, compared to the S&P 500’s 26.9% total return.
In contrast, the tech and communication services sectors, which were among the two best-performing sectors in the S&P 500 in 2020 with returns of 42.2% and 22.2%, respectively, saw gains decline to 33.4% and 20.5% respectively in 2021.

Now what?

COVID-19 isn’t over, but the run up in these stocks seems to be. So the key now would be to look at the underlying businesses of these stocks to see if these pullbacks warrant a buying opportunity.
For drug makers, that means asking what’s in the pipeline other than vaccines. For companies like Zoom or DocuSign, do you think the brand will continue to lead its area?
Also look at long term stock performance. If a stock was performing well before the COVID bump, it may have pulled back but could resume its previous course.
The market in general has been retreating since the start of the year, as investors fear impending rate hikes by the Federal Reserve. The S&P 500 is down 6.20% year to date. The tech-heavy Nasdaq is down nearly 11%.
After pullbacks like this, it’s often a good time to analyze losing companies and buy the ones that fell with the market, absent company-specific woes.
Good businesses before the pandemic upsurge are likely good after, even if the stock slides back to prepandemic levels.
At the time of publication, Matt Miczulski owned shares of PTON, NVAX, MRNA and BNTX.

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