The novel coronavirus (COVID-19) pandemic is hammering markets worldwide, and certain sectors are faring worse than others. Plunging oil prices are crushing energy stocks, zero interest rates are gutting financial stocks, and extended closures are killing many retail stocks.
The tech sector is also struggling as digital advertising revenue dries up and enterprise spending slows to a crawl. However, certain industries within the tech sector remain well-insulated from the market chaos. Let's take a look at four industries that fit that bill.
1. China's streaming video companies
China's infection rate decelerated after it imposed draconian lockdown measures in February, and it's recently eased those restrictions and allowed businesses to reopen. Chinese companies that rely on ads or overseas exports are still struggling, but streaming video leaders like JOYY (NASDAQ:YY) and Huya (NYSE:HUYA) are thriving.
JOYY, which hosts live streams and short videos, expects its revenue to rise 41%-43% annually in the first quarter. Huya, the game streaming platform spun off from JOYY in 2018, expects 45%-47% growth. Both companies saw an uptick in engagement as lockdowns and quarantines boosted usage of streaming video services, and that momentum should continue throughout the rest of the year.
2. High-growth cloud stocks with recurring revenue
The usage of cloud services should remain elevated throughout the crisis as more people work from home, access cloud services, and spend more time shopping online, playing games, and streaming video and music. Therefore, cloud companies with recurring subscriptions should be well-insulated from the pandemic.
A top play in this industry is Veeva Systems (NYSE:VEEV), which provides cloud-based services to life science companies. Veeva helps companies communicate with customers and tracks clinical trials, prescribing habits, and other medical data -- all crucial tools for companies racing to develop treatments for COVID-19. That's why Veeva still expects its revenue to rise 33% in the first quarter and 27% for the full year.
3. Leading cybersecurity companies
As more people work from home, the threat of hacks and data breaches also rises. Therefore, top cybersecurity companies that have locked in their clients with long-term contracts should easily weather the market downturn.
One of those companies is CyberArk (NASDAQ:CYBR), which focuses on internal threats (like corporate spies and careless or disgruntled employees) instead of external ones. CyberArk faces less competition in this niche market, but it still generates impressive growth.
It expects its revenue to rise 13% in the first quarter of 2020 and 19% for the full year. It's also one of the few cybersecurity companies that consistently generates stable profits on a GAAP basis, thanks to its conservative use of stock-based compensation.
4. Data center component makers
The increased strain on data centers is forcing operators to upgrade their servers. That's good news for component makers like memory chip maker Micron (NASDAQ:MU) and hard drive maker Seagate (NASDAQ:STX).
Micron, which is emerging from a cyclical downturn in memory prices, is already seeing supply shortages sparked by strong demand from data center customers. Seagate, which doesn't expect a "material financial impact" from the coronavirus crisis, should also sell more platter-based HDDs (hard disk drives) -- which cost less than lower-capacity SSDs (solid state drives) -- to data center customers rushing to upgrade their storage capacities.
The key takeaways
I'm not suggesting investors buy all of these stocks right now, since the market will remain turbulent until the global spread of COVID-19 slows down. However, investors should keep an eye on these industries and consider nibbling on these stocks -- which are shielded from the worst aspects of the pandemic -- before the broader market recovers.