Pfizer (PFE -3.85%), Airbnb (ABNB 0.10%), and Fastly (FSLY -3.35%) all have one thing in common: near-term catalysts that should lift their share prices to new heights next year. In the past three months, shares of the three companies are already up by between 22% and 105%, far outperforming the S&P500's 10% gain during the same period.
Many investors become extremely hesitant to buy stocks trading at high valuations, or that have large recent run-ups behind them, fearing that they might get burned in a correction. However, momentum stocks can stretch out their rallies for months or years, so those fears can often result in one missing out on big gains.
Today, let's look at why a coronavirus vaccine manufacturer, a vacation rental company, and an edge computing business are all poised to reward shareholders in 2021.
Image Source: Getty Images.
1. Pfizer
On Dec. 11, Pfizer and BioNTech's (BNTX -1.57%) coronavirus vaccine, BNT162b2, received emergency use authorization from the Food and Drug Administration. That milestone made it both the first-ever mRNA vaccine and the first coronavirus vaccine to obtain FDA clearance. Those two companies can now begin delivering BNT162b2 -- and they already pre-orders for more than 570 million doses from more than a dozen countries and the European Union. At a price of $19.50 per dose, Pfizer would generate $5.6 billion in sales on those existing contracts, after accounting for its 50-50 profit and expense sharing agreement with BioNTech.
That's good news as Pfizer has been in serious need of new revenue generators. This year, the company spun off its generic drug business, Upjohn, due to poor performance. In fact, Upjohn's sales fell by 18% year over year in Q3 as the FDA approved a record number of generic versions of treatments whose patent protection had expired.
Due to the spinoff, Pfizer will lose about $8.5 billion per year in revenue. On the bright side, it expects its core biopharma business to grow at an annualized rate of 6% a year through 2025 -- excluding sales from BNT162b2.
The company expects to generate up to $42.4 billion in sales and $2.38 in earnings per share for the year (also excluding vaccine sales). Based on that projection, the stock is trading for 5.4 times revenue and 17 times earnings, which is quite inexpensive. If that isn't enough, the stock also has a solid annual dividend that, at the current share price, yields 3.70%.
2. Airbnb
Wall Street seems optimistic about Airbnb: Its stock is trading at nearly twice the $68 a share at which it IPOed on Dec. 10. But there are near-term concerns, as the pandemic has clobbered the company's bottom line. In the first nine months of 2020, gross bookings and sales declined by 39% and 32% year over year, respectively, to $18 million and $2.5 billion. The company also swung to a $2.1 billion accumulated deficit after earning $520.1 million in cumulative free cash flow (FCF) from 2011 to 2019.
However, these metrics are historical looking and do not account for an upcoming turnaround. Investors of Airbnb stock are essentially betting on a quick return to the normal for global leisure travel, and fortune is on their side. Multiple coronavirus vaccines have now received regulatory clearance in various nations, and more are heading in that direction. Countries and regions worldwide will undoubtedly begin easing their border restrictions and quarantine requirements once mass vaccinations occur.
With its community of four million hosts, 7.4 million properties, and 54 million active bookers worldwide, Airbnb arguably should benefit significantly from a return to normalcy. Airbnb grew its revenue by 32% in 2019 to $4.8 billion, with $38 billion worth of bookings. If you're an investor looking to make profits on a travel resurgence post-COVID-19, definitely check out Airbnb stock.
3. Fastly
Fastly took a huge hit back in August when Chinese tech company ByteDance stopped using the company's edge computing service to deliver its videos from its Tiktok platform. That decision came at a time when the Trump administration was pushing for a U.S. ban on Tiktok, which it viewed as a potential national security threat.
In the first half of 2020, ByteDance was Fastly's biggest single client, accounting for between 12% to 15% of the company's revenues, with half of that coming from the U.S. Those lost sales may actually come back now that a second U.S. judge has blocked Trump's TikTok ban. That would be huge for Fastly, as Tiktok also accounts for a vast majority of its services' growth. Right now, the app has over 850 million users, up from 680 million two years ago.
In Q3, Fastly's revenue grew by 42% year over year to $71 million. More than 2,047 clients using Fastly's service, with 88% of them being other corporations. Together, these clients have a 147% customer retention rate, meaning that each entity is spending more each year on its cloud and edge computing services. For 2020, the company expects to generate $292.2 million in sales, a sharp increase from the $200 million it brought in 2019.
With excellent results like those, it's not too surprising there are rumors that software giant Cisco Systems is looking at Fastly as an acquisition target.When a large-cap tech company buys a smaller one, it usually pays a handsome premium over its current share price. With two possible catalysts on the horizon, tech investors should consider picking up some shares of Fastly soon.
