The Lockdown Portfolio: Five stocks positioned to outperform if COVID-19 social distancing drags on

Many years ago, in the last recession, I penned a column here that set up a ‘survival’ portfolio. It held shares in a water company, a mattress company, a company that makes oxygen tanks and so on. Results were pretty good!

Now that we are back in another recession (not official yet, but who are we kidding?) we thought we would lay out a potential COVID-19 stock portfolio of five stocks whose shares might do well in a long lockdown. Buyers beware: some of these stocks have run hard already, and in a post-COVID world might seriously underperform. But for now, at least, they are looking good. Plus, it is usually a very good sign for a stock to rise while the rest of the world is retrenching, regardless of what’s going on. Here goes:

Netflix (NFLX on Nasdaq)

Of course, sometimes stocks are easier to pick than others. With pretty much the entire world on lockdown, it’s no real surprise that the stuck-at-homes need some entertainment. Myself, I am trapped in a house with four kids and without Netflix, well, it would not be pretty. Against my instincts, we even upgraded our Netflix account so more people could watch different shows at the same time. Netflix shares hit an all-time high this week, up 36 per cent for the year so far.

Zoom Video Communications (ZM on Nasdaq)

Prior to the current virus crisis, we doubt that many of you had ever heard of Zoom. After all, shares have been public only for a year. Now, we bet, you are hosting family and work meetings on the online meeting platform several times a week. The stock is expensive, at 360 times’ earnings, but shares are up 123 per cent this year and up six-fold from last year’s IPO price. From a marketing/awareness point of view, at least, the virus has been golden for Zoom. Its customer base and brand recognition have surged, and it is now a $42-billion company by market cap. As an aside note, Zoom provides free meetings for meetings of 40 minutes or less. We know dozens of people in the business world who would be more than happy to pay MORE if all of their meetings could automatically end after 40 minutes.

Regeneron Pharmaceuticals (REGN on Nasdaq)

Regeneron is a US$56-billion biotech company, trading at 19 times earnings. It has US$6 billion in cash and shares are up 36 per cent this year. Why the outperformance? Well, Regeneron is working with partner Sanofi on two separate trials to see if the drug Kevzara can be effective in treating COVID-19. The drug, a so-called IL-6 inhibitor, may be able to reduce inflammation in the lungs that, in serious COVID-19 cases, can lead to death. Regeneron of course has other products as well, and reported nearly US$8 billion in sales last year. But in the short term a lot of eyes are going to be on its COVID clinical trials.

Loblaw (L on TSX)

Loblaw shares are up nine per cent this year. Not as impressive as the names above, but not so bad considering the TSX index is down 18 per cent in the same period. Loblaw shares also have a 1.7 per cent dividend. Like Netflix, no real surprise here. People gotta eat, and grocery stores are about the only stores open for full business these days. Going to the grocery store might be both the highlight  — and the scariest part — of most consumers’ weekly adventures right now. Shares are only a few dollars off their all-time high set in September last year.

Amazon (AMZN on Nasdaq)

Amazon shares surged to an all-time high this week, on news the company needs to hire another 75,000 employees to meet demand. Of all companies, Amazon was perhaps best positioned to benefit from a shutdown. Business was already mostly all online, and booming, and then billions of people were barred from brick-and-mortar retail stores. The company recently joined the $1-trillion market cap club, with shares up 25 per cent this year. One of investors’ concerns on the company earlier this year was its difficulty in finding employees. Well, with more than 20 million U.S. workers recently laid off, that problem has been clearly and easily solved. As with a trip to the grocery store, getting your Amazon packages delivered just might be the most exciting thing that happens in your house these days.

Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (https://www.5iresearch.ca).

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