The COVID-19 pandemic and subsequent recession took much more of a toll on smaller companies than their larger counterparts. While large internet companies are soaring to trillion dollar valuations and beyond, a recent survey by the U.S. Census Bureau showed nearly 80% of small businesses are feeling a moderate-to-large negative effect. A good indication of this can be found in two widely followed stock indexes. While the S&P 500 is up nearly 8% this year, the Russell 2000 -- made up of the bottom two-thirds of the 3000 largest publicly traded American companies -- has lost more than 3% year to date.
The following three companies stand to survive the difficult times and thrive on long-term societal trends, and are all great buys this month. Yelp (YELP 0.57%) and Fitbit (FIT) are well-known consumer brands despite their small size, and AMN Healthcare Services (AMN 0.57%), just as well-known in the healthcare industry, is carving out a position as the leader in workforce solutions for health systems.
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Yelp
Yelp burst onto the scene with an initial public offering in 2012, then proceeded to climb five times in value over the next two years. While revenue continued to grow each year, the stock market lost interest. Between 2014 and 2019, the company grew revenue 168% to slightly more than $1 billion. Since shares peaked in 2014, they have fallen roughly 80%.
Although the closure of restaurants and local businesses has caused Yelp's revenue to fall in 2020 -- the company just reported $640 million for the nine months ended Sept. 30, a 14% year-over-year decline -- the company has nearly $600 million in cash and no debt. With positive operating profit in this latest quarter, and page views and searches growing 40% from the depths of the pandemic-addled second quarter, the company is on a path to survive the crisis and resume growth next year.
AMN Healthcare Services
The healthcare industry has changed dramatically in the past decade. The Affordable Care Act (ACA) shifted payment models toward controlling costs and improving the quality of care, and the introduction of telehealth and remote monitoring solutions has increased resources where they didn't previously exist, outside of hospitals and doctor's offices. AMN Healthcare has embraced the changes and transformed itself from a staffing agency to a provider of total workforce solutions.
The company provides nurse, physician, and leadership search services for more than 1,600 healthcare clients. Add in predictive scheduling and shift management software, as well as language translation, and the company's value to hospitals, clinics, and surgery centers becomes clear. The company has also scaled remarkably well. Revenue has grown every year for the past decade, including the 8% top-line year-to-date growth just reported. Since 2015, the year after major provisions of the ACA took effect, revenue grew 52% through last year. Over that span, free cash flow increased nearly 390% -- a testament to management's ability to grow the business without needing to spend much. An aging population, expanded access to care, and adoption of technology to drive efficiency has AMN Healthcare in a position to continue its impressive run for investors over the next decade.
Fitbit
Almost exactly a year ago, Alphabet (GOOG 0.84%) (GOOGL 0.90%) unit Google agreed to buy Fitbit for $2.1 billion. The stock trades about 5% below the offer of $7.35 per share, representing uncertainty that the deal will get done. Google has made concessions to address fears from international regulators about its use of the device's health data for ad targeting. Europe, Australia, and the U.S. have expressed concerns over the deal and worry about the privacy of data gathered from Fitbit's smart watches. Although several Democratic senators have pushed the U.S. Justice Department to scrutinize the deal more closely, there is no concrete indication that the agreement is in jeopardy. Google's willingness to make concessions signals its intent to do what it takes to get the deal closed.
The probability of action from regulators is also lessened by competition in the smartwatch market. A June report from Canalys, a tech market analytics firm, showed market share in the category fragmented from Apple's 36% share to Fitbit's 6% share, with Huawei, Samsung, and Garmin in between. While U.S. regulators have provided no timeline, European Union regulators have set Dec. 23 as a deadline for deal approval. For nervous investors, the prospect of a 5% gain when the deal is closed, and the backstop of the offer price if the markets get choppy, make Fitbit shares an attractive place for money right now.
