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More Foot-Traffic, Less Click-Traffic Pt. 2

Daniel Laboe
·5 min read

It's day 2 of the market rotation out of secular growth and into beaten-down value names reversing 2020’s digitally-driven equity trend. This reversal is occurring in the wake of Pfizer’s (PFE) Monday announcement of a ‘successful’ vaccine, which proved to be 90% effective in its first Phase 3 clinical trials. For the market, this signals the light at the end of the tunnel.

The pandemic chaos may finally be coming to an end, and investors are pulling profits from the COVID winners in tech and reallocating capital into underperforming value sectors. The markets are pricing in more foot-traffic and less click-traffic.

I looked at some of the industry reversals we are experiencing this week in my article: More Foot-Traffic & Less Click-TrafficThis is the second installment to this profit rotation series, where I will take a look at some more important reversals that we may be able to take advantage of.

Work From Home

One of the most significant fundamental shifts in life during the COVID-crisis was the move for many to working entirely remotely. There had been a work from home movement already occurring in corporate America pre-Pandemic, with many enterprises adopting a hybrid work schedule that allows for worker flexibility.

One of the biggest beneficiaries of the work-from-home environment has been video meeting platforms, and Zoom (ZM) dominated this transition. Zoom Video grew its enterprise driven customer base by 458% to 370K in the past year. Its topline has exploded since the pandemic began, with accelerating sales and profitability.

The question now is whether ZM has staying power in a post-pandemic world. Investors and traders aren’t so sure, with shares plummeting over 23% since the vaccine announcement Monday morning.

At the other end of the spectrum, commercial real estate shark Cushman & Wakefield (CWK) has seen an over 15% appreciation this week. The stock remains down 30%, with many of its tenants not using their facilities or unable to pay their financial obligations, specifically on the retail front. The markets are now looking to the future of commercial real estate, which will undoubtedly evolve.

The stay-at-home initiative has forced managers to assess remote working productivity, and administrators were pleasantly surprised by the results. According to a PwC survey of 120 US executives done in June, the post-COVID world will be working from home more than ever before. Below is a PwC graphic with the survey results. 

A hybrid work-from-home structure will become commonplace in corporate America. This will likely mean that businesses may downsize their office space in the long run, but I don’t believe that companies will entirely abandon their office space.

The ‘new normal’ will leverage technology to accommodate those who would prefer to work from home and others who would choose to come into the office.

I don’t think that ZM can maintain its excessive valuation multiple (currently 40x price to sales), but there may be value in CWK on the slow road to recovery if the business can successfully adapt to the shifting enterprise model.

ZM vs. CWK

Financials

Fintech has been outperforming its big bank counterparts for some time now, with PayPal (PYPL) and Square (SQ) leading the charge. Year-to-date, these stocks have returned investors 65% and 171%, respectively. The world relies on digital payment methods more than ever amid the global lockdowns, and each business's record top and bottom lines can attest to that.

Traditional bank shareholders have experienced a lot of pain thus far in 2020, with JP Morgan (JPM) down 18% and Bank of America (BAC) declining 23%. These stocks saw a marginal rally in anticipation of a vaccine this week, but it was not as big as I would have expected.

The 10-Year US Treasury is trading at its highest rate since March, and the Fed will now be under more pressure to raise rate sooner than anticipated if a vaccine can bring the world back to some version of normality. Banks' margin crunch from ultra-low-interest rates may be over sooner than what's priced in. Bank stocks like JPM, BAC, and Goldman (GS), may represent a good value play today.

PYPL vs. JPM 

Final Thoughts

The stock market tides are shifting, and value stocks finally have their day in the spotlight. A massive dislocation is occurring in the market today, with the markets rotating out of growth and into value. This new vaccine announcement puts full economic recovery in investors' sights, and they are trading accordingly.

We haven't entirely sidestepped volatility either as COVID-cases rapidly tick up, and some say the worst is yet to come. There remains a massive amount of uncertainty surrounding fiscal stimulus and the new government regime yet to be sworn in.

Don't worry about missing the initial value surge as there will be no shortage of buying opportunities in the remaining weeks of 2020. 

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Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
Square, Inc. (SQ) : Free Stock Analysis Report
 
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
Pfizer Inc. (PFE) : Free Stock Analysis Report
 
JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Cushman Wakefield PLC (CWK) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
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