The bear market brought on by the COVID-19 pandemic seems -- at least for now -- to be in hibernation, as the major stock market indices have gained between 19% and 29% since bottoming out on March 23. Those indices, though, are still down by 9% to 16% this year.
While it's still unclear whether the bear has packed it in for the winter or is merely regaining its strength before delivering another rout, two things are certain: Investing offers the clearest path to generate wealth over the long term, and there are still stocks worth buying before the market goes back to setting new all-time highs.
Assuming you have a sufficient emergency fund built up and $4,000 (or less) that you don't expect to need in the next three to five years, here are four companies that will flourish in the coming years.
1. Shopify: E-commerce is leading the way
While the most obvious beneficiary of the pandemic-fighting stay-at-home policies is Amazon, investing in the tech giant is not the only way to capitalize on the country's greater reliance on e-commerce. Rather than putting your money behind the biggest player, why not bet on about 1 million smaller entrepreneurs that will be up and running once the health crisis has passed?
E-commerce platform Shopify (NYSE:SHOP) offers investors the opportunity to do just that. The company operates in 175 countries and offers services in 20 different languages, empowering businesses big and small to sell their products online. This stock provides immediate diversification in terms of business size, geography, and product lines.
A look at its most recent earnings report provides a preview of what to expect from the company in a post-coronavirus world. In the fourth quarter, Shopify's revenue grew 47% year over year, the result of solid subscription growth and merchant solutions. The company also generated a profit, after having delivered a loss in the prior-year quarter.
While management withdrew its guidance due to the current economic uncertainty, Shopify reported that declining foot traffic at brick-and-mortar retailers was driving more businesses online -- which will benefit it over the long haul. Shopify has also taken a number of steps to assist its merchants, including extended 90-day free trials, gift card availability, and supporting in-store and curbside pickup and delivery for its point-of-sale merchants.
It doesn't hurt that Shopify has a strong balance sheet, with $2.4 billion in cash and no debt.
2. Activision Blizzard: The games we play
One of the ways people are whiling away the seemingly endless days and weeks on coronavirus-induced lockdown is by playing video games. Their popularity had already seen a big boost in recent years, the result of technological advances. At the same time, esports were already gaining traction, and the stay-at-home orders have only accelerated the adoption of both. One company that is particularly well-positioned to benefit from these booming trends is Activision Blizzard (NASDAQ:ATVI).
The company is the purveyor of such top-selling franchises as Call of Duty and World of Warcraft, with each offering seemingly endless permutations for their respective fan bases. Call of Duty: Warzone -- its free-to-play, battle royale offering -- boasted 30 million players less than two weeks after its March 10 debut.
Investors shouldn't underestimate the potential of esports, which is expected to grow from a $694 million market in 2017 to $2.17 billion by 2023 -- a compound annual growth rate (CAGR) of nearly 19% -- according to research firm MarketsandMarkets.
Activision Blizzard owns and operates two esports leagues tied to major franchises, namely the Overwatch League and the Call of Duty League. While the former is working to resume its city-based matches once stay-at-home restrictions are lifted, the Call of Duty League shifted its inaugural season to online-only competition without missing a beat.
Activision Blizzard is also well-positioned to ride out the storm, with $5.8 billion in cash and just $2.7 billion in debt.
3. Netflix: Time to binge
Providers of stay-at-home entertainment are seeing dramatic surges in traffic in a world beset by COVID-19, and streaming video services have experienced some of the biggest gains. While the trend was already well-established, many people who had been resisted the siren call are now flocking to platforms with the biggest libraries, and no platform has more content than Netflix (NASDAQ:NFLX).
A growing cadre of analysts has chimed in on the company in the weeks since the pandemic began. After deploying a variety of analytical tools, they have all come to the conclusion that viewers are flocking to Netflix in unprecedented numbers.
The latest prognostication comes from analyst Matthew Thornton of SunTrust Robinson Humphrey. After analyzing a combination of search data, app downloads, and regional data, Thornton believes Netflix will report a near-record high of at least 9.5 million new subscribers in the first quarter, 2.5 million more than Netflix's current forecast and 2 million higher than analysts' consensus estimate of 7.5 million.
Thornton believes the company will see a boost in the second quarter as well, as more people who signed up in March will roll off their free trial periods and become paying customers. Thornton also cites a strong slate of content -- like the breakout hit Tiger King -- as well as the appeal of locally-focused programming in countries across the globe as factors that will not only attract new subscribers, but keep them around long after this crisis is over.
Netflix has $5 billion in cash, but unfortunately, its long-term debt has ballooned to $15 billion, so it's heavily leveraged. The good news is that with more than $5 billion in new revenue each quarter and accelerating customer demand, Netflix should be able to easily ride out the pandemic.
4. DocuSign: Sign here
Another casualty of social distancing could be the tradition of signing documents in person. The use of online signature software was already gaining steam, but with hundreds of millions of people hunkering down at home, remote signing has become a business necessity rather than a convenience. This makes the e-signature technology provided by DocuSign (NASDAQ:DOCU) more important than ever.
Its revenue grew by 39% in 2019, an acceleration from its 35% gain the year before. Even more importantly, 94% of its recent revenue came from subscriptions -- meaning it's less likely to be negatively affected by a downturn or even a recession, and its remote signing technology promotes efficiency, which is even more important during times of economic uncertainty. Management signaled its confidence in the company's strong position by providing guidance that was even more robust than analysts expected.
With work-from-home mandates stretching into the foreseeable future, businesses will be even more likely to adopt DocuSign's technology. And once they're on board, odds are they will remain as customers.
The company's balance sheet is slightly concerning: It has $656 million in cash and short term investments, but $465 million in debt. It's worth noting, however, that the debt is convertible to equity, so it represents less of a financial risk.
Some investors will ask the inevitable question, "Why buy now?" To that question, I would respond, "Why not?" We can't know if this volatile market has already reached its pandemic bottom or if it has further to fall -- and anyone who claims otherwise is merely blowing smoke. However, since the market spends more time rising than falling, the best time to buy stocks is always "now."
For investors who are not entirely convinced that now is the best time to buy, I suggest another time-tested strategy: Ease in gradually, buying some shares now and adding to your positions later.