The COVID-19 pandemic has brought much of the global economy to a standstill. This has had a significant effect on the price of most stocks. However, for some companies, things have never been better. These are the companies that enable people to work from home.
While remote work is not new, for many companies it is. Very large corporations around the world have suddenly had to find tools that allow their staff to access systems and communicate with team members from home. In this post we highlight some of the leading remote working stocks.
- What are remote working stocks?
- Prominent companies that support remote work
- Other types of remote working stocks
- Valuations and timing
- Risk management
What are remote working stocks?
Most companies not operating essential services are currently either not operating at all or asking employees to work from home. The longer social distancing policies are enforced, the more companies will be forced to operate as best they can with their employees working from home. This will continue for a long time after mandatory lockdowns are lifted.
Remote working is not only becoming more ubiquitous because of the COVID-19 pandemic. Companies are increasingly allowing employees to work from home to reduce costs associated with commuting and renting office space. Several successful companies now run their entire businesses without office space. The pandemic is just another reason for companies to embrace the trend.
Remote work is being made possible due to faster broadband speeds, cloud storage and innovative software. It’s the companies developing this software that are now in the spotlight. Most of these companies are SaaS (software as a service) companies – but the entire cloud computing industry stands to benefit too.
Prominent companies that support remote work
The following are the most prominent remote working stocks for investors to consider. This is not a US specific selection, but all the prominent listed companies, apart from one, are based in the US.
- Zoom Video Communications (ZM)
- Slack Technologies (WORK)
- Dropbox (DBX)
- DocuSign (DOCU)
- RingCentral (RNG)
- Citrix Systems (CTXS)
- Box, Inc (BOX)
- Atlassian Corporation (TEAM)
- CrowdStrike (CRWD)
- Microsoft (MSFT)
- Alphabet / Google (GOOG)
- Amazon (AMZN)
Zoom Video Communications (ZM)
Zoom is a video conferencing platform. Zoom’s easy to use platform and “freemium” business model have resulted in rapid adoption by people doing remote work and families wanting to stay in touch. During 2019, Zoom’s record number of users on a single day was 10 million. During March, the platform regularly had 200 million users logged on each day. This number could increase significantly as over 90,000 schools around the world are now using the platform to conduct lessons.
The sudden growth in user numbers has attracted the attention of investors, and Zoom has been one of the strongest performing stocks in 2020. However, it is worth being cautious. The valuation is very high and many of the new users are not yet paying subscribers. The key for this company will be the number of users it can convert to paid subscriptions.
Slack Technologies (WORK)
For some time now, Slack’s communication platform has been a favorite for teams collaborating on projects. The platform is especially popular amongst startups – especially those who’s employees work from home. The platform is built around persistent chatrooms but includes numerous other tools that aid productivity and project management. Chatrooms can be organized by team, function or topic, and a permanent paper trail is kept for all communication.
Slack and Microsoft’s Teams product are viewed as direct competitors. Microsoft is better resourced and has better distribution. However, investors and users both appreciate the fact that Slack is entirely focused on just one product. The company was one of the many tech stocks that held its IPO in 2019. The initial valuation was very high, and the stock price has been in a downtrend ever since. However, this trend began to reverse in March when remote working stocks work came into focus.
Dropbox was one of the first cloud storage and file-sharing apps. Although it has lost market share to other cloud storage providers like Microsoft and Google, Dropbox still has 600 million users. The company listed in 2018, but the stock price has drifted lower ever since due to the number of competitors entering the market. However, the company is currently adding new features to allow users to better collaborate and communicate in real time.
DocuSign is a digital transaction management platform and a market leader in electronic signature technology. Its products allow companies to prepare, execute and act on agreements and contracts. The solutions are all cloud based so clients can continue operating when employees are limited to remote work. DocuSign targets both large and small through a variety of distribution channels and has 7,000 companies paying for its services.
DocuSign is one the companies that was performing well before the pandemic began. The stock price followed the market lower in March but has since gone on to make a new all-time high.
RingCentral provides unified communications solutions to companies. These solutions allow companies to integrate various forms of communication, including voice, data, SMS, fax and email, with one platform. Besides online meeting and conference products, the company is a leading provider of cloud-based PBX and fax solutions. Its products also integrate with Drobox, Box and Google Docs.
RingCentral may not be as exciting as some of the other companies mentioned – but it has been riding the remote work trend for some time. Sales have grown at 33% annually for the last five years, and since 2014, the stock price has risen from $10 to over $200.
Citrix Systems (CTXS)
Citrix is a global provider of software that allows companies to make their systems available to remote workers. Products include virtual machines and apps, file sharing and storage solutions and device management solutions. These products are crucial for large companies that need to give employees access to enterprise systems. The company’s financial performance was strong in 2019, and COVID-19 is reinforcing its position as a market leader. Citrix is transitioning to a subscription model which should also make its future revenues more predictable.
Box, Inc (BOX)
Box offers cloud-based content management solutions. These solutions allow teams to collaborate in real time on various types of content. A specific focus is the level of control users have over editing and sharing of content.
The company’s products are popular with developers that need to store complex data for artificial intelligence and big data applications. Box also allows developers to create applications that integrate with its own products as well as other cloud services. Box was an early leader in the cloud storage space, but growth has been slow over the past few years. It’s still worth keeping an eye on the company as it may benefit from a larger overall market.
Atlassian Corporation (TEAM)
Atlassian, which is based in Australia, is the only non-US company on the list. Atlassian offers a range of well-known project and productivity tracking tools. The most well-known is Trello, a project management and task tracking tool. JIRA, a platform that allows teams to plan and manage complex projects, is another of its products. Other products include Confluence and Bitbucket.
Atlassian has achieved annual earnings growth of 38% for the past 5 years, making it one of the top performing remote working stocks. Its broad product range and gross margin of 83% make for an attractive proposition – however it is trading at a very rich valuation.
CrowdStrike may not be the most obvious of the remote working stocks – but it addresses an important issue for companies with employees working from home. When employees access a company’s system from their homes, those systems become vulnerable to attack. CrowdStrike offers cloud-based security solutions to prevent breaches under such circumstances.
The company held its IPO in June last year and the stock price has been extremely volatile since then. After initially rallying 65 percent the price collapsed to below the IPO price. However, the pandemic has brought the company back into focus and the stock price is back at its IPO price.
Over the last 10 years Microsoft has been transitioning its Office products to the cloud under the Office 365 banner. This has no doubt already made the transition to remote work easier for a lot of companies. But, as far as the future goes, Microsoft’s Teams product is more relevant right now. Teams was introduced in 2017, but aggressive marketing began in 2019. The markets’ reaction was mixed last year – but the COVID-19 pandemic has changed that. Users who may have been indifferent, are now being forced to use the platform and get used to it.
Unlike the other companies mentioned here, Teams is relatively small within Microsoft’s portfolio. But it does add value to the entire productivity suite. In addition, a recession is always a good time to invest in high quality stocks.
Alphabet / Google (GOOG)
Google introduced many of the world’s first applications suited to remote work. Starting with Gmail, the range of products was expanded to include productivity applications like Sheets and Docs, as well as Google Drive. Hangouts was also one of the first widely used video chat applications. Google is also one of the market leaders when it comes to large scale cloud computing.
How much Google will benefit from the current situation is not very clear. After all, Google is really a media company that earns most of its revenue from advertising. However, the stock price is a lot lower than it was a few months ago, and Google’s entire portfolio is well positioned for the future.
Amazon’s cloud business, AWS, is a market leader in the provision of cloud based computing power and cloud storage. Companies around the world are in the process of moving their data storage and processing to the cloud. Not only does this make access for remote work easier, but it gives large companies greater flexibility.
Amazon AWS, like Microsoft and Google, stands to benefit as companies accelerate their transition to cloud computing. Of course, Amazon’s e-commerce business will also be a beneficiary in the long term as traditional retail remains under pressure.
Other types of remote working stocks
The companies mentioned thus far are those that facilitate remote work for jobs traditionally done in an office. But there are other types of remote working jobs too. The software companies that facilitate these roles are also worth considering for a stock picking strategy. In many cases the current situation may prompt companies to use freelance workers. The freelance economy has been gathering momentum over the last few years and the pandemic may accelerate this trend. Upwork (UPWK) is the leading platform matching freelancers with clients.
Social isolation has so far resulted in less business for Uber (UBER). However, the pandemic has also been a boost for ecommerce – which may be positive for Uber’s food delivery business, Uber Eats, in the long run. The COVID-19 pandemic is accelerating adoption of “Telemedicine”. Teladoc Health (TDOC) is the only listed, pure-play company in this space. However, more traditional health insurance companies like Anthem (ANTM), Humana (HUM) and CVS Health Corporation (CVS) are also ramping up their telephone-based services.
The last group of remote working stocks to consider are those involved in distance learning. Schools around the world are being forced to conduct lessons remotely. This won’t be permanent, but it may accelerate any e-learning plans that schools and colleges were already developing. Students will also be looking for resources to make up lost time later in the year. Chegg (CHGG), Arco Platform (ARCE) and Instructure (INST) are prominent stocks in this field worth investigating.
Valuations and timing
This article highlights many of the companies that enable remote work to take place. That doesn’t mean all these stocks are worth buying at current levels. It also doesn’t imply they are all good investments. The prices and valuations of many remote working stocks are already quite high. To justify these valuations, they need to prove they are really benefiting from the pandemic. The financial performance of these companies over the last few years is also worth considering.
The longer the economy is disrupted, the better the long-term prospects will be for companies that enable remote work. Over time, prospective clients will test more platforms and move more of their activities to cloud based platforms. As social distancing continues, companies and employees will become more comfortable with cloud-based platforms. This will increase the likelihood of long-term adoption of these platforms.
Quarterly results for the first quarter will be released over the next few months. These results will give us the first clue as to whether companies are actually earning more revenue. Results for the second quarter, due from July onwards, will illustrate the first full quarter with isolation measures in place.
As we mentioned in our article on surviving the Coronavirus recession, there is a reasonable chance that volatility returns later in the year. This would offer an opportunity to invest in the companies after they have proven their ability to capitalize on the increase in remote work.
Risk management is as important, if not more important, than ever with these remote working stocks. Market volatility is high, and many of these companies are trading on high valuations. When market volatility increases, the correlation between most asset classes increases, and correlations within the stock market increase too. Remote working stocks will not be immune when market indices fall.
There are two ways to manage this risk – at the individual stock level and at the portfolio level. Positions in individual remote working stocks should be kept small until there is more certainty about the future. If you are investing early, it may be worth using a stop loss to limit losses.
At the portfolio level, there is no substitute for asset allocation and diversification. By including defensive assets in a portfolio, volatility will be reduced if, or when, market volatility increases. Bear markets do offer the best opportunities for investors – but your first priority should still be preserving capital.
The most reliable defensive asset classes of previous bear markets have been AAA rated government bonds and hedge funds. Catana Capital’s Data Intelligence Fund has already outperformed the equity market by a substantial margin in 2020. The fund uses real time big data and artificial intelligence to respond quickly to changing market conditions.
Conclusion: Remote working stocks
The current bear market is creating some of the best investment opportunities in years. But the companies that enable remote work are especially well positioned. The remote working stocks mentioned in this article are not only well placed to benefit during the pandemic. They are well positioned for a future in which more people will work from home or from small satellite offices closer to their homes.
However, these stocks should be approached with caution. They need to prove that they can turn user growth into revenue growth, and that new revenues are sustainable. In many cases these companies are trading on high valuations and they will not be immune if there is more downside for the indices. Nevertheless, they are worth watching in the coming months.