The COVID-19 pandemic has muddied the picture for growth investors. By reordering consumer spending priorities around the world, it has produced record sales gains for typically slow growers like retailers and packaged food giants. At the same time, businesses that support remote work or the in-home delivery of entertainment are now stars on Wall Street.
Smart investors know that the best businesses to buy today are those with durable competitive advantages that were only amplified by the changes brought on by the pandemic. Those assets should help stocks like Wayfair (NYSE:W), Nike (NYSE:NKE), and Boston Beer (NYSE:SAM) outperform the market regardless of what comes next.
As an e-commerce giant focused on home goods, Wayfair's business was ideally suited for the pandemic. And, sure enough, its sales soared by 84% year over year to $4.3 billion in the second quarter.
But Wayfair was an impressive business even before COVID-19 accelerated the trend toward online shopping for home products. The company soaked up market share in 2019 despite competition from both its e-commerce peers and brick-and-mortar retailers. Its proprietary shipping network helped keep repeat orders flowing by lifting customer satisfaction even as its tech divisions removed pain points from the digital shopping experience for products like sofas.
Wayfair was targeting 2020 for its first year of break-even results before the pandemic struck; it's now on track to easily achieve that goal. That makes it more likely that investors will see many years of expanding profits from this growing business.
Even the shutdown of in-person retailing and the global halt of sporting events couldn't keep Nike down for long. The footwear and apparel giant in late September announced flat sales for its fiscal 2021 first quarter (which ended Aug. 31), just a few months after reporting a 36% year-over-year slump in the prior period.
That rebound offers strong evidence that Nike is better positioned than most of its peers. But investors keeping tabs on this stock are even more excited about its potential to expand its profit margins over the next few years. Nike's direct-to-consumer sales are far more profitable than its wholesale business, and that segment of the company is surging today, with room to nearly double as a percentage of sales in the next decade.
Investors won't see much progress on that score in the fiscal year that just started, thanks to COVID-19 disruptions and excess inventory that will have to work its way through the supply chain. But Nike's business is primed for growth, both in sales and operating margins, over the long term.
Boston Beer's stock price more than doubled through the first three quarters of 2020. There were some good reasons for that investor optimism. The alcoholic beverage company has effectively transitioned away from its reliance on a craft beer niche that had become crowded in recent years, successfully pushing into hard cider (which it dominates) and hard seltzer, two far more attractive industry segments.
The results have been stellar. Boston Beer's depletions, a measure of consumer sales, jumped 43% last quarter as home-based drinkers stocked up on brands like Truly hard seltzer and Twisted Tea. Those are numbers that rivals, from Anheuser Busch InBev to Constellation Brands, couldn't come close to matching.
Of course, it wasn't long ago that Boston Beer was struggling against these peers as the craft beer boom pressured its business. But its results since then suggest that the Sam Adams maker has the right assets in marketing, innovation, and distribution needed to thrive in an industry characterized by constantly shifting consumer preferences.