There is always a bull-market in one or more asset class. Even if all asset classes are trending lower, it’s a bull-market for cash. The same holds true for different companies and industries. Through the Covid-19 pandemic, there have been winners and losers. Pharmaceutical, at-home entertainment and e-commerce names were among the top stocks to buy in the early stages of the pandemic.
With a global vaccination drive underway, there are hopes that the worst of Covid-19 is over. However, the delta variant is increasingly a concern. As case rates rise in the United States, more restrictions may be imposed again to mitigate infections.
Some people may have become complacent about Covid with approximately half of the U.S. population fully vaccinated. However, in an email to InvestorPlace, Sachin Jain, M.D., national medical director at VillageMD and a board-certified infectious disease physician, said:
“As of July 14, 2021, 48.2% of the total U.S. population has been fully vaccinated, but that’s not enough to keep us in the clear. This week, almost all 50 states have reported spikes in cases due to the Delta variant, with at least 35 states seeing increases of more than 50%.”
Sachin also points out that the death toll has been rising. The delta variant is not only more contagious, but it might also cause more severe symptoms than other strains. Additionally, on Aug. 19, the Centers for Disease Control and Prevention (CDC) shared that an estimated 99% of recent Covid-19 cases were caused by the delta variant.
I would not be surprised if restrictions are imposed again to prevent the delta variant from creating havoc. If you’re preparing your portfolio for a potential Covid lockdown, consider these seven stocks to buy:
- Zoom Video Communications (NASDAQ:ZM)
- Pinterest (NYSE:PINS)
- Netflix (NASDAQ:NFLX)
- Cricut (NASDAQ:CRCT)
- DoorDash (NYSE:DASH)
- Nautilus (NYSE:NLS)
- Teladoc Health (NYSE:TDOC)
Stocks to Buy: Zoom Video Communications (ZM)
ZM stock has declined by 18% in the last six months. However, the stock seems positioned for a strong reversal if Covid-19 restrictions are reimposed.
It’s worth noting that companies are already pushing back their return-to-office dates to 2022. And even if offices open in the coming year, they might have a limited capacity. Therefore, the demand for online meetings and communication will sustain.
From a financial perspective, Zoom Video has maintained a healthy growth trajectory. For the first quarter of 2022, the company reported revenue of $956.2 million, which was higher by 191% on a year-over-year (YOY) basis.
For the same period, the company reported free cash flow of $454.2 million. With an annualized FCF visibility of $1.8 billion, Zoom has ample headroom to invest in innovation.
The acquisition of Kites GmbH will give Zoom multi-language translation capabilities. Further, Five9 provides intelligent cloud-based software for customer service that can expand the company’s business offerings. It seems Zoom is consolidating on its leadership position in the industry through valued-adding solutions.
Overall, ZM stock is one of the top stocks to buy in a lockdown 2.0 scenario. After some downside and consolidation, its shares seem attractive.
From a high of $89.90, PINS stock has corrected significantly to about $53 today. I believe the stock is worth considering at its current levels and likely to rally again if Covid restrictions are reimposed.
A key reason for the stock’s decline was investors’ disappointment in Pinterest’s monthly active user numbers. In Q2 2021, active users declined to 454 million compared to 478 million in Q1 2021.
According to Pinterest, people spent less time on its app as Covid-19 restrictions lifted in Q2 2021. This translated into a decline in active users. Therefore, if the delta variant leads to another lockdown, people will get back to at-home leisure and entertainment. This is likely to result in renewed growth in active users.
An important point to note is that even with a decline in active users, increasing average revenue per user has kept the company’s overall revenue on the rise. If this trend sustains, Pinterest is positioned for a higher EBITDA margin and cash flows in the coming years.
Additionally, Pinterest is focused on making the platform more shoppable. For Q2 2021, catalogue uploads increased by 50% over Q1 2021. With Pinterest emerging as a proxy e-commerce platform, user engagement is likely to remain high.
Stocks to Buy: Netflix (NFLX)
NFLX stock has under-performed in the last 12 months. However, at-home entertainment will gain renewed traction under lockdown conditions. I would not be surprised if the stock surges higher in that scenario.
It’s worth noting that for Q2 2021, Netflix reported 1.54 million additional global paid users. However, for the next quarter, the company expects to see an additional 3.5 million users. A return to Covid restrictions is likely to ensure that net user additions accelerate further.
Another important point is that Netflix has witnessed sustained growth in its operating margin. For the year, the company has guided for an operating margin of 20%. From a growth perspective, content remains the key factor. The pandemic slowed down new content creation.
On a positive note, Netflix has cash and equivalents of $7.8 billion. This provides the company with ample financial flexibility to aggressively invest in content production or acquisition.
Netflix is also in the early stages of expanding into games. With a global presence, this new content category can have a big addressable market. Interactive gaming is also likely to gain traction in a lockdown scenario.
CRCT stock listed at $20 in March 2021, fell to $15.80 when it debuted and eventually surged to highs around $47.40. However, with some deceleration in growth, the stock has corrected to levels around $26.50. I believe this is a good opportunity to accumulate shares, especially as delta variant infections increase.
As an overview, Cricut is a creativity platform that enables users to turn ideas to professional-looking handmade goods. Therefore, a lockdown would be good news for Cricut as it would increase demand for at-home activities.
For Q2 2021, the company reported revenue growth of 42% on a YOY basis to $334.5 million. For the same period, EBITDA increased by 39% to $68.5 million. Cricut also witnessed strong user growth, with 5.4 million total users and 1.8 million paid subscribers.
An important point to note is that the company has just started to expand internationally. For Q2 2021, international revenue surged by 179% on a YOY basis. With a wider reach, Cricut is positioned for sustained growth in the coming years.
Cricut reported $54 million in cash used in operations for the first half of 2021. However, that’s not a concern — the company has $314 million in cash and equivalents. Additionally, Cricut has access to $150 million in credit. As subscription revenue increases over the long-term, the company is positioned to generate healthy cash flows.
Stocks to Buy: DoorDash (DASH)
DASH stock touched lows of $110 in May 2021. But the stock has trended upward in the last three months and currently trades at $183. Even after the upside, it’s one of the top stocks to buy for a return to Covid restrictions.
DoorDash connects restaurants and consumers via an ordering platform and then coordinates delivery or pick up services. In the event of a lockdown, the demand for takeout will increase significantly and accelerate growth for the company.
The company is already on a high-growth trajectory. For Q2 2021, the company reported 83% revenue growth to $1.2 billion. For the same period, adjusted EBITDA also increased 43% to $113 million. This was its highest EBITDA reported in the last five quarters.
At the same time, DoorDash has witnessed strong growth of marketplace orders from non-restaurant categories.
From the perspective of expansion, the company is already present in the United States, Japan, Australia and Canada. As of June 2021, the company had cash and equivalents of $3.3 billion. This can provide DoorDash with ample financial flexibility for expansion to new geographies.
NLS stock has also under-performed recently. Year-to-date, the stock has declined by 36%. However, it does seem like an attractive buy at a forward price-to-earnings (P/E) ratio of 13.2.
The company provides at-home workout and fitness equipment, making the stock worth buying for another lockdown scenario.
For Q1 2022, Nautilus reported revenue growth of 61.7% to $184.6 million. Retail sales growth for the same period was 91.4% on a YOY basis.
Even for the coming quarter, the outlook is robust with a sales guidance of $145 to $155 million. However, the stock has been depressed due to margin compression and the impact of the chip shortage.
The important point to note is that Nautilus believes the gross margin pressure is temporary. The company expects to achieve an operating margin of more than 15% by 2026. Therefore, the stock correction is a good buying opportunity. Additionally, any further lockdown can boost sales beyond the guidance.
A recent survey indicated that nearly three out of four Americans believe that at-home workouts will stay even after the pandemic. This is bullish for Nautilus from a medium- to long-term perspective. Overall, NLS stock seems oversold and a possible lockdown can be a reversal catalyst.
Stocks to Buy: Teladoc Health (TDOC)
As a virtual healthcare provider, Teladoc stock is likely to benefit from increased Covid-19 restrictions. After touching highs of $308, the stock has declined sharply to its current level around $140. The weakness in the stock came as the market responded to its growth expectations. However, at current levels, the stock seems poised for a strong reversal.
Last month, the company reported Q2 2021 results with revenue increasing 109% YOY to $503 million. U.S. paid memberships also increased marginally to 52 million. Teladoc has guided for full-year revenue around $2 billion.
I believe TDOC stock is positioned for upside on a couple catalysts. First and foremost, a Covid-induced lockdown can potentially accelerate membership growth. Furthermore, its EBITDA margin is still depressed. Once key margins start showing meaningful improvement, the stock will be revalued.
The company’s international revenue is still not meaningful. However, it is seeing steady growth that will remain robust as its addressable market increases.
TDOC stock has witnessed an extended period of decline, but the company has made meaningful business progress. Virtual healthcare is likely here to stay, so current levels are attractive for fresh exposure.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.