Zoom and other ‘stay home’ stocks dived on news of Pfizer’s 90% effective vaccine, while airline stocks like Delta took off. Is this the start of a rotation?
- There was a coordinated record high for the Dow, S&P 500 and Nasdaq but there was one specific area of the stock market that got left behind – tech & 'stay home'
- The companies that have fared best during the pandemic would understandably be set to underperform when the real economy reopens safely with a vaccine
- This year the outperformers include communications tech firms like Zoom while the underperformers include airlines Delta Airlines
- COMPARISON: The news of Pfizer’s vaccine efficacy sent shares of Delta Air Lines higher by nearly 20% and shares of Zoom lower by nearly 20%.
Sectors of the market that have suffered most during the pandemic; including banks, airlines, cruise lines, casinos and oil companies saw huge gains on the news that there is an effective vaccine. A huge drop in demand for holidays and entertainment because of government enforced lockdowns, low interest rates and oil demand shock hit all at once because of COVID-19. A vaccine could put all these factors into reverse.
Zoom (ZM) stock is one of the clearest examples of a high tech stay at home play in the market. The stock made a 52-week high of $588, having started the year at $62. The stock now trades at $380 – a 34% discount from its high a month ago.
Delta Airlines (DAL) stock is a stark example of what got hit by the panic selling in March and never came close to pre-pandemic price levels. The stock made a 52-week low at $17.51 having started the year at $60. It now trades around $36 – it’s doubled off its March low but remains 40% below its 52-week high.
The case for Delta
About time something different happened. With an investment in Delta and airlines you are making a counter-trend investment. These stocks have been heading lower all year. So why might things change? A steepening yield curve helps- it shows a bet from investors in higher growth – something that cyclical companies like Delta, which do well when the economy is doing well and people are flying would benefit from.
People will travel again. A vaccine that gives people the confidence to travel again is huge news but it might be full-hardy to buy these stocks on one day’s worth of price action. Experts seems to think a vaccine would be widely available well into next year- it could mean airlines like Delta going though another lacklustre summer travel season- and that means raising capital through debt which puts the company’s future in jeopardy or through equity which dilutes current shareholders. This maybe a mute point if the airline gets a government bailout with no strings attached.
The case for Zoom
Trends last longer than anyone expects. An investment in Zoom now is buying into considerable momentum for the year but at one third discount to record highs. How can Zoom keep up the pace? The company is already a household name and is growing into new areas like hosting online events. People in a business and private capacity are getting used to travelling less and communicating online. This means Zoom can continue to grow from here with new users and extra reliance by current users.
Zoom is part of a new era. A vaccine means people can travel with more confidence but how quickly will they fully regain that confidence and how have behaviour patterns changed during the pandemic? The biggest risk is that Zoom’s price reflects huge growth that will be harder to reach if people can revert to more ‘normal’ meetings and seminars.
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