The stock market recovery off of historic 2020 lows has been anything but even. Large-cap tech names have dragged averages higher, while technology as a whole ballooned to 36.6% of the S&P 500 index -- a historic high. Conversely, many stocks remain lower for the year.
Three companies -- Apple (AAPL -1.22%), NVIDIA (NVDA -10.01%) and Salesforce.com (CRM -0.57%) -- saw their share prices benefit the most during August. Is it too late to invest in these coronavirus beneficiaries?
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Stay with the winners?
All of the S&P 500 winners in August -- including the three biggest leaders listed above -- have one thing in common: The companies all benefited from trends created by the pandemic like working from home and social distancing. For example, NVIDIA's and Apple's hardware both benefit from remote living cultivating the need for more connected devices, while Salesforce's software empowers productivity from a distance.
When looking through the rest of the S&P 500's August winners, that trend becomes clearer: If a company relies on live attendance to generate sales, times have been tough. If, however, a company's products and services cater to life amid COVID-19, share profits have been generally abundant.
If the pandemic continued forever, it would be feasible to think companies benefiting from COVID-19 could continue realizing outsized growth and increased interest. Fortunately, this nightmarish virus should have an expiration date thanks to the biotech industry's efforts to develop a coronavirus vaccine.
Improving news flow
Last week, Abbott Labs got emergency FDA approval for its $5, 15-minute coronavirus test. While this doesn't eradicate the disease, it does greatly enhance our ability to scale testing nationwide. The FDA also granted emergency authorization for a blood-plasma treatment that cuts the COVID-19 mortality rate considerably. Perhaps most importantly, Dr. Anthony Fauci -- the leading infectious disease expert in America -- consistently and publicly reiterates his belief that a vaccine for the novel coronavirus will be available by the beginning of 2021. Former FDA head Dr. Scott Gottlieb has publicly shared that belief numerous times, too.
All of these tools will be valuable pieces of the puzzle for overcoming COVID-19. When we finally do, trends propping up technology companies such as Apple, NVIDIA, and Salesforce may begin to ebb. Perhaps when the mortality risk is greatly diminished, folks will be more likely to take a vacation or eat dinner in a restaurant rather than continuing to exist in isolation. That's not a good thing for stocks gaining from forced distancing.
Does that mean technology stocks and other companies benefiting from COVID-19 should be avoided and even sold? No. Instead, if you have decided -- for example -- that you wish to buy NVIDIA despite its historically elevated earnings multiple of 96 times, maybe add shares incrementally. This will allot you more flexibility to dollar-cost average your investment in the stock if it does begin to fade.
What next?
COVID-19 continued to power pandemic beneficiaries in August. With news beginning to improve on the vaccine, testing, and treatment fronts, it may not be time to aggressively buy into pure-play pandemic winners.
Longer term, these could all continue to be fruitful investments for shareholders. For now, however, encouraging news in biotech could lead current market leaders to pull back and give you a better chance to add equity exposure later on. If you are determined to add an August pandemic winner like Apple, NVIDIA, or Salesforce, proceed with caution.
