What happened

Shockwaves went through the market today after Pfizer (NYSE:PFE) and BionTech (NASDAQ:BNTX) reported that phase 3 trials for their COVID-19 vaccine candidate were effective in more than 90% of participants.

That news sent a charge through "recovery stocks" like those in the consumer discretionary, energy, and banking sectors, while pushing down stocks that had surged during the pandemic, especially in the tech sector. Among the losers were Facebook (NASDAQ:FB), which closed down 5%, Pinterest (NYSE:PINS), which lost 10.8%, and Okta (NASDAQ:OKTA), which gave up 6.8%. At the same time, the Dow Jones Industrial Average, which holds a number of cyclical stocks, finished up 3%, while the tech-heavy Nasdaq dropped 1.5%.

A health worker holding a syringe marked "Covid-19 vaccination"

Image source: Getty Images.

So what

All three of these companies can lay some claim to membership in the "stay-at-home" stocks club, which have surged during the pandemic. As social media platforms, Facebook and Pinterest have seen their user base and engagement jump during the pandemic, though advertising growth dipped in the initial months of the crisis. Okta, on the other hand, is a provider of internet security through identity and access management, an area that has seen strong growth during the pandemic as companies need to ensure remote access for both employees and customers.

Investors seemed to sell off tech stocks for mostly valuation-related reasons, rotating into recovery stocks that are likely to benefit from pent-up demand when the pandemic is over, though that won't be for several months.

Facebook is the cheapest stock of the bunch, according to conventional metrics, and the stock has also gained the least of the trio this year, though shares are still up 35% year to date. While Facebook's business will remain strong in a post-pandemic world, especially as advertising from industries like travel and entertainment rebounds, it's not surprising to see the stock price get shaved off as euphoria for tech stocks seemed to be much of the reason for its surge this year, which brought it to above $300 a share momentarily. Facebook's business performance has actually been weak this year compared with historical patterns. Revenue growth in its last two quarters has been the two slowest in its history as a publicly traded company, though top-line growth of 22% in its third quarter was still solid. Earnings per share jumped 28% to $2.71, showing that Facebook remains a profit machine.

Rival Pinterest has seen its shares explode this year, with the stock more than tripling year to date. Since its bottom, Pinterest stock is up more than 400% as user growth and the overall business performance have surged past analyst expectations in its last two quarterly reports. However, such gains bring concerns about stretched valuations. Pinterest now trades at a price-to-sales ratio of 25, compared with just 9 at the beginning of the year.

While Pinterest has seen a surge in users, with 37% growth in monthly active users to 442 million in the third quarter, its advertising business was slower to recover as second-quarter revenue rose just 4% before third-quarter revenue grew 58%. While Pinterest will see a deceleration in engagement growth when the pandemic ends, the business should also benefit from recovery in industries like wedding and travel.

Like other cloud stocks, Okta shares have boomed this year, with the identity cloud provider nearly doubling year to date. So far, it's continued to put up strong growth numbers, but the stock has also benefited from multiple expansion, with its price-to-sales ratio having risen from 25 to 38 over the year, mirroring other software-as-a-service stocks.

Unlike peers such as Shopify or Zoom, Okta's growth rate has been mostly consistent with its pre-pandemic performance. The company has yet to report third-quarter earnings, but through the first half of the year, the company delivered strong results with 46% revenue growth and a slim adjusted profit. The steady performance of the business compared with pre-COVID times should reassure investors that the stock is unlikely to experience a significant drop when the pandemic ends the way some of its peers could.

Now what

All three of these stocks have been big winners on the market because they have built-in competitive advantages, large addressable markets, and a track record of delivering growth. While the stocks are likely to be volatile over the coming months as vaccine news continues to come out and the pandemic remains fluid, over the long term all three should be winners.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.