Pulling The Plug On Pandemic Prizewinners
As the stocks that soared during 2020 continue to unwind, we feel it's time for investors to move on.
Over the past couple of weeks, earnings season has provided us with a lot of information to ponder on. One angle that we’ve chatted through is the continuation of slowing demand for the so-called pandemic prizewinners, namely companies that soared during the lockdown periods.
The tumble lower in the share prices of this basket of stocks isn’t new. In fact, for much of the second half of 2021 onwards, the trend higher has reversed. Yet some have been holding onto these names in the hope that fortunes reverse. But is it finally time to pull the plug and move on?
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The 2020 boom
To begin with, let’s run through why the pandemic generated such large spikes in key stocks. Below we show the 2020 percentage gains of Peloton (blue), Tesla (orange) and Zoom (white):
We feel the three specific stocks highlight what helped to trigger the boom. One factor at play was natural demand. Zoom is the classic case here. With all of us in lockdown, the video conferencing platform rapidly became the go-to place to get human interaction. With the uptick in users and new accounts being onboarded, the 367% jump in the share price was largely justified.
Peloton was another pandemic prizewinner. The stationary bike and software provider hit on a sweet spot in getting users that again were stuck at home but wanted to exercise. The ability to also connect and train with other users from your own home was a unique gap in the market that enabled the company to have a boom in revenue during this period.
Both of the stock gains for 2020 were impressive, but were eclipsed by Tesla, which rallied by a whopping 850%. During the year, the EV giant set itself apart from other car brands that were overly hampered by pandemic restrictions.
In October 2020, Tesla has recorded a fifth quarter in a row of profit. It recorded $8.7bn in revenue in the three months to September, as deliveries rose 54%.
The stock surge was also fuelled by Musk’s acceptance of Bitcoin, which was performing well at the time too. Finally, with many having more disposable income due to the lockdowns, Tesla became a popular stock to own, which became a self-fulfilling prophecy as the share price continued to move higher and higher.
Bust from 2020 onwards
Unfortunately, the party started to slow as we came into 2021. Below is a great graphic from the FT that shows the percentage change since 2020 for some of the pandemics largest winners:
For some stocks, it’s a case that the pandemic was an instance of “make hay while the sun shines”. We feel a good example of this was Zoom. A great chart showing this is the number of App downloads, which spiked during Q2 2020:
