The COVID-19 pandemic has certainly thrown a wrench into the global economy, decimating many smaller local businesses, brick-and-mortar retailers, and travel-related businesses alike. And even though economies are beginning to open back up, COVID-19 is still out there -- and will be for some time until a vaccine is developed.
That means both businesses and customers will have to plan for and adopt a more digital lifestyle, with work-from-home, telemedicine, and remote education all becoming more entrenched ways of living. All of that will require more cloud computing, semiconductors, and advanced software to make everything run smoothly.
Those trends will benefit the following three stocks today and over the long run, making each a solid buy entering June.
It's no secret that Amazon.com (AMZN -3.01%) has become one of the most important companies in the country today, as millions of Americans are shopping for needed goods online while quarantining. Amazon has an estimated 38% of U.S. e-commerce sales, and e-commerce as a whole grew 14.9% in 2019, to roughly 16% of all retail sales.
Look for both of those figures to get a huge boost thanks to coronavirus, which has caused many customers to order items from Amazon for the first time, and existing Amazon customers to purchase more goods than ever. Research firm eMarketer had previously expected U.S. e-commerce to grow about 13.2% in 2020 and for Amazon to take even more market share, outgrowing the industry at 17.2%. However, that was before coronavirus.
My colleague Andrew Tseng estimates Amazon's March e-commerce growth accelerated to something near 40% growth, as widespread lockdowns forced many to buy from the e-commerce giant. That will likely continue into the second quarter as well. While I wouldn't expect 40% e-commerce growth for the rest of the year, Amazon's e-commerce sales are certainly likely to be much higher than previous estimates.
Amazon benefits from powerful network effects with increased usage. The more buyers it has, the more sellers it attracts, and more transactions allow Amazon to continually improve its service, such as last year's introduction of one-day shipping for Prime members. Improved service, in turn, leads to more buyers, starting the virtuous circle again.
Amazon also may have the opportunity to accelerate its own internal shipping capabilities thanks to decreased air travel, which has depressed sales and leasing prices for new planes. Shipping more of its own goods could allow Amazon to wring even more costs out of its e-commerce business and efficiently grow Shipping with Amazon, a new service serving third-party customers.
Finally, with more companies needing low-cost cloud computing to enable working from home, Amazon Web Services (AWS) should continue its solid growth. Last quarter, AWS grew 33%, and operating margins jumped 400 basis points in the quarter to 30.1%, continuing AWS's run as one of the best business segments of any company anywhere.
Despite Amazon's nice 32% run year to date, I still think shares look like a good buy here, as Amazon continues to innovate new business opportunities at a faster pace than just about any other large company.
Another all-star company bucking the economic downturn is Ubiquiti (UI -1.09%). In many ways, Ubiquiti was already wired for the COVID-19 environment even before the pandemic hit. Ubiquiti dominates the low-end niche for networking equipment for small- and medium-sized enterprises, as well as aerial broadband radios that bring high-speed internet to rural and developing areas of the world.
In the first quarter, Ubiquiti reported solid results in spite of coronavirus. Sales grew 18.4% year over year, and adjusted earnings per share rocketed a whopping 28% higher, thanks to a huge amount of share repurchases over the course of the past year. The repurchases have boosted founder Robert Pera's ownership stake to nearly 90% of the total company. If that's not aligned with shareholder interests, I'm not sure what is!
Ubiquiti's unique business model doesn't include any hands-on sales executives or customer support engineers. Instead, Ubiquiti has cultivated an evangelical online community of users who help each other through the company's website and other social media forums. Users can also interface directly with Ubiquiti's engineers, speeding up innovation and customer feature requests.
The low-overhead, internet-dependent model allows Ubiquiti to sell its equipment at a significantly lower price point than high-end networking vendors such as Cisco or Hewlett Packard Enterprise. High-quality yet affordable networking equipment should definitely be in demand these days, as consumers, small businesses, and even some enterprises are likely looking to boost their connectivity at an efficient price point. All of that spells more good things for Ubiquiti in the current environment.
The current stay-at-home society should put a premium on electronic devices, connectivity, and storage capacity now and over the long term. One beneficiary of all of these trends should be Micron Technology (MU 0.89%). Micron produces DRAM memory, which increases the speed of computing, and NAND flash, which is the most advanced non-volatile type of storage. Micron is also one of only two companies producing 3D Xpoint memory, a new kind of non-volatile memory that is faster than NAND flash but is still very expensive, and only launched commercially last year.
These are all the key technologies that will power 5G phones, artificial intelligence applications, and cloud and edge computing -- all of which should get a boost this year as the digitization of the economy accelerates. Yet Micron's stock price is still more than 20% below its February highs. Economic downturns have been brutal for memory companies in the past, as prices for memory modules can fluctuate with supply and demand, leading to a lot of uncertainty around Micron's pricing.
Yet at a recent industry conference, CEO Sanjay Mehrotra pre-announced preliminary results for Micron's fiscal second quarter that just ended at the end of May. He now estimates revenue between $5.2 billion and $5.4 billion, as well as adjusted (non-GAAP) earnings per share of $0.75 to $0.80, well above the company's previous guidance in March of $4.6 billion to $5.2 billion and $0.40 to $0.70. Micron saw strength in data center and laptops, which offset weakness in smartphones and industrial and auto customers.
The memory industry had already been through a price crash during 2019, and all of the major manufacturers have cut back on supply over the past year. The current uncertainty seems poised to continue that cautious supply posture, even as demand could surprise to the upside, given all of the work-from-home and automation trends going on today.
Though Micron can definitely be a cyclical stock, it remained profitable even in the recent trough quarter. At just 1.4 times book value, Micron looks like one of the few value stocks that nevertheless cater to the stay-at-home digital economy. That should make it a top pick for long-term investors this month.