3 Stock Picks for The Stay-at-Home Economy

Written by: Michael Harris
April 3, 2020
  • Governments introduce new measures to limit the virus spreading more quickly
  • Italy in lockdown, U.S. bans travel from Europe in the next 30 days
  • Stay-at-home economy likely to provide a boost for entertainment industry despite the major stock market selloff

The coronavirus outbreak continues to create major problems for the governments and businesses worldwide. According to the Johns Hopkins University Coronavirus Resource Center, the number of infected people has risen to nearly 130,000 people, including more than 4,700 deaths reported so far.

Governments introduce emergency measures

Governments around the world are introducing extraordinary measures to slow down the virus outbreak in their countries. In Europe, Italy is placed under complete lockdown as the continent’s leader in the number of infected people.

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Besides all public institutions being closed, the Italy’s Prime Minister Conte said that all types of private and public facilities should be closed, with an exception of food shops and medical facilities.

“We close stores, bars, pubs and restaurants. Home delivery is allowed,” he said in a televised statement.

Last night, the U.S. President Donald Trump suspended most travel from Europe to the U.S. for 30 days, with the exception of the United Kingdom. In addition, he introduced a 30-day ban on individuals who visited the European Union’s Schengen Area, that consists of 26 countries, in the past two weeks.

“This is not a financial crisis. This is just a temporary moment in time that we will overcome as a nation and a world,” said Trump.

Trump’s action fueled a negative reaction from Brussels.

“The coronavirus is a global crisis, not limited to any continent and it requires cooperation rather than unilateral action. The European Union disapproves of the fact that the U.S. decision to impose a travel ban was taken unilaterally and without consultation,” it is said in the EU statement.

Other countries, such as Denmark, closed all public and private schools, kindergartens, and Universities after a surge in the number of cases.

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Stocks in meltdown

The global stock market is today having one of the worst days in recent memory. At the time of writing, Japan’s Nikkei futures are down nearly 10%, while Germany’s DAX 8.4% and the UK’s FTSE 100 are both 8.4% down.

The situation is a tad better in the United States, where the three major indexes trade around 6% lower today. The stocks fell so quickly that trading had to be halted for 15-mins after a “Level one” was breached. Looking a few weeks ago, indexes have already lost a quarter of their value.

Analysts fear that the worst is yet to come.

“Consumers sitting at home and not out spending money because they fear catching the coronavirus is the ultimate negative outcome. It has been the U.S. consumer who has been driving the recovery bus during this long expansion,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

“We are going into a global recession. After what’s been happening the last few days, we are going to see a spread of economic sudden stops. The trouble with economic sudden stops is that it’s not easy to restart an economy,” said Mohamed El-Erian, chief economic adviser at Allianz.

As Governments instruct their citizens to stay at home and avoid public gatherings, analysts believe that the market is moving towards the “stay-at-home-economy”, thus opening new opportunities for investors.

“What works in this difficult environment are companies with products that you can enjoy from the comfort of your home. COVID-19 didn’t create the stay-at-home economy. You know, we’ve spent years here moving in that direction,” said CNBC’s Jim Cramer.

Here is a list of 3 stocks that may benefit from the “stay-at-home” policy.

Activision Blizzard

The increased stay-at-home activity is likely to benefit the entertainment sector the most. For this reason, shares of Activision Blizzard (NASDAQ:ATVI), a major producer of games for console, mobile, and other platforms, looks well-positioned to attract more attention from investors.

“ATVI screens the most favorably to benefit from increased stay-at-home activity. We see mobile as a prime beneficiary given it’s free-to-play nature,” Jefferies analyst Alex Giaimo wrote.

Giaimo has a buy rating placed on the stock with a target price set at $72, nearly $16 higher than the current market price.

Nvidia

NVidia (NASDAQ:NVDA), a gaming and data center supplier, also belongs to the entertainment sector. Shares of Nvidia are looking like a stock that is holding up a bit better than the rest of the market, as they are trading at levels seen just three months ago, while some other stocks are hitting multi-year lows.

“If anything, the data center will only grow as more people stay at home, and gaming is the ultimate stay-at-home entertainment,” said Cramer.

Looking at the financials, the company’s revenues doubled, while its earnings grew over three times in the last four fiscal years.

Facebook

The inclusion of Facebook (NASDAQ: FB) in this list shouldn’t surprise many people. The stay-at-home instructions are expected to increase the time people spend on social networks, be it for informational or entertainment purposes.

As the world’s largest social network, Facebook is an apparent choice for stay-at-home activities. As a result, Facebook is likely to benefit from ads due to the higher activity on the network.

James Lee, an analyst from Mizuho Securities, has a buy rating on Facebook stock with a target price of $240, almost $80 higher than the current market price.

Summary

The coronavirus outbreak is likely to have a strong impact on the global economy in the first half of the year. In the meantime, the Governments around the world are imposing a new set of measures to try and slow down the limit.

Many private companies have already placed their staff on a “work-from-home” regime, which is likely to hurt the business activity overall, but also provide a boost for certain stocks, such as Facebook, Nvidia or Activision Blizzard.