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3 Tech Stocks That Can Beat the S&P 500 Amid the Coronavirus Sell-Off

By Aditya Raghunath - Mar 25, 2020 at 10:20AM

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Here's why Amazon, Netflix, and Zoom are well poised to beat the bear market and outperform major indexes in 2020.

The broad market sell-off continues to take a toll on investors. Major indexes such as the Dow and S&P 500 are down 27% and 24%, respectively, year to date. The coronavirus pandemic has put a strain on various sectors, including airlines, tourism, consumer technology, and restaurants.

The bear market is likely to severely affect tech stocks, especially those with high valuation metrics that tend be volatile during a downturn. But there are always companies that can outperform the broad markets in such circumstances due to their strong business models and the shifts in consumer or enterprise demand during these times.

Here, we look at three such tech stocks that are well-poised to hold their own in an environment that's likely to be volatile for months to come.

Man looking at stock charts on computer screens

Image source: Getty Images.

The world's largest online retailer

COVID-19 has affected countries around the globe. The death toll grows each day, and governments are urging people to work from home and self-quarantine in order to contain the spread of the virus. Now, people are spending on essentials such as groceries and medicines and delaying other expenditures. 

As people stay at home, the number of online shoppers can be expected to increase, providing Amazon (AMZN 3.15%) with an opportunity to take market share in these tough times. While the company has prioritized the sale of consumer staples at the expense of discretionary goods, there may very well be a boost in the purchases of toys, tablets, and other home entertainment products.

Amazon has also seen a strong uptick in demand for Whole Foods' grocery delivery. COVID-19 has created a sense of panic among many consumers, who have started overstocking their homes with essential products.

The surge in demand has led Amazon to cut its ad spending dramatically with Alphabet's Google, which also lowers customer acquisition costs for the online retailer. Earlier this month, Amazon announced the addition of 100,000 employees at its fulfillment and delivery centers to meet the growing demand.

The demand for its streaming service, Prime Video, should also increase. The company has followed Netflix (NFLX 2.90%) and YouTube in slowing down streaming speeds in Europe as several countries are in lockdown.

The world's largest streaming service

One stock that is fairly coronavirus-proof is streaming giant Netflix. There is a good chance that the outbreak will result in an uptick in subscriber additions, which are already growing at a strong pace. In the fourth quarter, Netflix's subscriber base rose 20% year over year to reach 167 million paid users, and the company can gain even more subscribers in countries across Asia, Europe, and Latin America as COVID-19 continues to disrupt everyday routines. In the March quarter, Netflix expects paid membership to come in 17% higher year over year.

Netflix has also had to halt production of its upcoming releases due to the outbreak, which will decrease spending in 2020. Even if the streaming giant does not gain additional subscribers, its revenue stream will not be affected severely, as it is unlikely users will cancel subscriptions in the near term.

As Fool contributor Andrew Tseng noted, Netflix's standard U.S. plan costs $12.99 per month. The average subscriber watches two hours of Netflix content daily, making the cost per hour extremely affordable.

Netflix will continue to benefit from the cord-cutting phenomenon as major pay-TV operators lost close to five million customers in 2019, according to a report from Leichtman Research Group. In North America, the number of streaming subscriptions surpassed cable-TV subscribers for the first time in 2019, and the same trend can be expected in countries around the globe.

A leading collaboration company

One of the top-performing stocks amid the coronavirus sell-off has been Zoom Video Communications (ZM 2.78%). As enterprises are forced to work remotely, the demand for Zoom Video's collaboration-focused offerings is expected to experience a considerable increase.

ZM Chart

Data by YCharts.

On Mar. 19, authorities in California issued a stay-at-home notice to the state's 40 million residents. Since then, more than a dozen other states have followed suit.

In several other countries, businesses, schools, and other services are shut down, generating incremental demand for Zoom Video's products. According to Apptopia, global daily active users for Zoom Video are up 67% since Jan. 2020.

The company has stepped in to help these organizations with a change in business policies. Zoom Video has removed time limits for free accounts in coronavirus-affected regions. It also does not have any limitations for public schools in the U.S., Japan, and Italy.

All three tech stocks have managed to beat the bear market amid the sell-off. At the time of this writing, Amazon, Zoom Video, and Netflix are all still in positive territory for 2020. These companies can outperform and move higher through the remainder of the year.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$179.95 (2.90%) $5.08, Inc. Stock Quote, Inc.
$109.56 (3.15%) $3.35
Zoom Video Communications Stock Quote
Zoom Video Communications
$110.97 (2.78%) $3.00
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,174.75 (-0.21%) $-4.51
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,097.26 (1.05%) $321.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,825.33 (1.05%) $39.95
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,181.62 (-0.27%) $-5.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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