If you asked a room full of people to pick a single word to sum up 2020, there's a very good chance that "coronavirus" or "COVID-19" would dominate the list of responses. The coronavirus pandemic has undoubtedly played an outsized role in shaping the economy and everyday life this year, but like the Spanish flu of 1918 or the swine flu pandemic of 2009, this too shall pass. Successful investors know that it pays to keep looking forward.
To get a survey of some promising post-pandemic plays, we asked three Motley Fool contributors to profile a stock that they believe is poised to thrive as the world bounces back from virus-related challenges. Read on to see why they think Impinj (NASDAQ:PI), Match Group (NASDAQ:MTCH), and StoneCo (NASDAQ:STNE) have what it takes to be winners.
This Information Age innovator is worth the risk
Keith Noonan (Impinj): It's been a challenging year for companies with substantial exposure to the brick-and-mortar retail space. Impinj has never ran any kind of store operations, and it's exceedingly unlikely that the semiconductor specialist will ever dip its toes in those waters, but the company counts on the retail space for the large majority of its sales.
Impinj makes radio-frequency identification (RFID) tags, sensors, and software, and these technologies had been gaining ground in the retail space as a more effective and advanced replacement for the barcode system. The company's small and durable tags are relatively inexpensive and can allow retailers to improve the speed and accuracy at which they are able to take inventory, in addition to opening up new analytics opportunities.
With retail success increasingly hinging on gathering and analyzing valuable data, there's a strong growth outlook for RFID solutions in the space. Retailers are facing a cut-throat competitive environment, and the need for a well-managed omnichannel presence will only grow from here. Shifting inventory to quickly adapt to consumer demand and improving supply chain efficiency will be make-or-break endeavors for many players in the space, and Impinj's technologies could play a key role in helping company's meet their goals. On the other hand, that hasn't stopped the business from being hit hard during the coronavirus pandemic.
Closures for brick-and-mortar retail outlets and reduced consumer traffic meant that Impinj has suffered dramatic sales declines in recent quarters. The company's RFID technologies are also in the early stages of being adopted to track baggage in the airline industry -- another corner of the business world that has been crushed by the pandemic.
Coronavirus-related headwinds were the driving factor in the company's sales diving roughly 31% year over year in both the second and third quarter. However, risk-tolerant investors looking for potentially explosive post-pandemic plays may find a lot to like about the stock at current prices. Impinj's sales should rebound as the world moves closer to a state of normalcy, and growth in its core end markets combined with new use cases could lead to huge returns.
Joe Tenebruso (Match Group): The COVID-19 crisis has made a lot of people quite lonely. Millions of people have been stuck in their homes unable to visit friends or family or go to social gatherings. So, when the coronavirus pandemic eventually ends, many people are going to be in search of companionship. That's where Match Group comes in.
Match Group owns a diverse collection of popular dating apps. More than 10 million people subscribe to its products. At the center of Match Group's love-focused empire is Tinder, the No. 1 downloaded and grossing dating app in the world.
Match Group's subscription-based business model produces strong recurring revenue and bountiful cash flow. Revenue jumped 18% year over year to $640 million in the third quarter. And over the first nine months of 2020, Match Group's free cash flow rose 11% to $486 million.
These figures will no doubt receive a boost as the health crisis subsides. Promising vaccines developed by the likes of Pfizer and Moderna could help people build immunity to COVID-19. In time, social distancing measures may become less necessary. And social gatherings could become common once again as society normalizes. Match Group will likely see an influx of demand as this occurs, driving its cash flow -- and, by extension, its stock price -- higher in the process.
Cash in on this fintech name
Will Healy (StoneCo): StoneCo has mastered the art of bringing fintech services to a cash-based society. However, payment volumes took a hit as COVID-19 ravaged Brazil, its only current market.
Deloitte reported that Brazil's gross domestic product fell by almost 10% in the second quarter from levels seen in the year-ago quarter.
StoneCo was not immune to the effects. Although total payment volume (TPV) for StoneCo grew by 28% in the same quarter, it was well below the 55% increase in TPV for fiscal 2019.
Nonetheless, StoneCo swiped pre-pandemic growth levels with a 114% increase in TPV in the latest quarter as retail sales improved. This sent diluted earnings per share higher by 30%.
However, what makes this such a buy is the expectations for the post-pandemic world. The company declined to offer forward guidance. Still, analysts expect earnings growth of about 80% in fiscal 2021.
If the company even comes close to meeting these estimates, the growth in StoneCo stock will probably continue. Moreover, another potential catalyst is the similar financial culture of Brazil's Latin American neighbors. Should StoneCo expand outside of Brazil, this growth could continue for years to come.
Finally, investors should not ignore this opportunity simply because StoneCo stock is up by almost 100% this year. Its forward P/E ratio of just over 75 is less than half of that if its counterpart Square (NYSE:SQ), pointing to more possible upside.
As fintech plays a more significant role in Latin America's economy, StoneCo should continue to cash in as its market recovers from the pandemic.