With the April consumer price index (CPI), a metric used to gauge inflation, at 4.2%, the market has been gripped with fears of the Federal Reserve tightening the current stimulative monetary policy to control inflation. Investors fear that such a move can adversely affect the stock market and can even lead to a market crash.
Hence, investing in Dogecoin (DOGE +1.56%) is not advisable, even though the crypto asset has gained over 7,036% so far this year. Investors should note that the asset has dropped by more than 50% from its all-time high of $0.74 in less than a month. Dogecoin remains highly exposed to headline risk arising from events ranging from Chinese regulators' crackdown on the crypto industry to Tesla CEO Elon Musk's tweets.
Instead, retail investors can benefit in these uncertain times by investing in high-quality stocks that are resilient to market ups and downs. Let's explore why Etsy (ETSY +1.21%), Walt Disney (DIS 0.12%), and UnitedHealth Group (UNH 0.09%) fit the bill.
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1. Etsy
Although e-commerce player Etsy's first-quarter financial results were stellar, investors were disappointed by its second-quarter revenue guidance of 15% to 25% year-over-year growth. This is a stark deceleration from the first-quarter year-over-year revenue growth of 142%. Subsequently, shares of this company have tanked and are down by more than 34% from an all-time high of $251.86.
This sell-off, however, seems exaggerated and offers an entry point for retail investors. Despite trading at a rich forward price-to-earnings (P/E) multiple of 45, Etsy has many factors working in its favor. The company is essentially an online marketplace for customized and creative products, a niche not covered effectively by bigger e-commerce players such as Amazon and Wayfair. According to Etsy, buyers searching for personalized and customized items are 20% more likely to complete the purchase. Besides better conversion rates, Etsy's trailing-12-month operating margin of 26.8% is far higher than Amazon's 6.6% and Wayfair's 4.3%.
In the first quarter, Etsy reported year-over-year growth in active buyers (those who shopped at least once in the last 12 months) by 91% to 90 million. Active sellers rose 70% year over year to 4.5 million. As more buyers and sellers flock to this platform, it becomes more valuable. This network effect will continue to benefit Etsy even after the pandemic.
Etsy has estimated its total addressable market opportunity to be over $100 billion. With trailing-12-month revenue of just over $2 billion, there is still much runway available for this disruptive e-commerce platform to grow in coming years.
2. Walt Disney
Global entertainment company Walt Disney was dramatically affected by the COVID-19 pandemic. The company suffered in several areas, including its movie studio, theme parks, resorts, cruise lines, advertisements on its TV network, and live sports on ESPN. However, much of this negative impact was offset by the strength of its direct-to-consumer (DTC) business, especially the Disney+ streaming platform, in 2020.
Understandably, investors were displeased when Disney+ reached a total subscriber count of 103.6 million at the end of the second quarter of fiscal 2021 (ending March 31), lower than the analysts' expectation of 109 million. The company is also guiding for weak subscriber growth for Disney+ in the second half of fiscal 2021. However, this should be expected considering that there was a strong pull forward in subscriptions during the pandemic. While this may cause fluctuations in subscriber count in the next few quarters, the company remains confident about Disney+ reaching its long-term subscriber count target of 230 million to 260 million by end of 2024.
Additionally, smaller streaming services such as Hulu and ESPN+ have emerged as growth drivers. The strong performance of these two services enabled Disney to reduce operating losses of its DTC business year over year by $500 million in the second quarter.
Disney expects the theme parks business, a major revenue contributor in the pre-pandemic days, to rebound in the coming months. The company has already started increasing capacity limits and opening closed parks. This was inevitable considering the strong pent-up demand for outdoor activities. The U.S. Centers for Disease Control and Prevention has announced that fully vaccinated people can enjoy outdoor activities and even most indoor activities without a mask. This, in turn, has enabled Disney to ease up on the masking requirements for its Florida theme park, a move expected to boost attendance levels.
While Disney's long-term strategy seems robust, the company's second quarter was a mixed bag. The company posted better-than-expected profits but failed to meet the top-line consensus estimates.
Nevertheless, this entertainment giant has huge branding power and will rapidly return to full strength of operations, so long as the COVID-19 pandemic is controlled by the ongoing vaccination programs. Disney is well positioned to be even stronger than its pre-pandemic days, considering that it now has a solid streaming business to support its other entertainment franchises. Hence, despite trading at a rich P/E multiple close to 35, the stock can prove to be an attractive long-term pick for retail investors.
3. UnitedHealth Group
Health insurance giant UnitedHealth Group has gained over 40% in the past year, slightly outperforming the S&P 500, which is up 38.4% in the same time frame. The company handily surpassed top-line and bottom-line consensus estimates in the first quarter of 2021. The company has also raised its fiscal 2021 adjusted earnings per share (EPS) guidance to $18.10 to $18.60, a jump from its previous guidance of $17.75 to $18.25.
UnitedHealth Group's healthcare services business, Optum, continues to be its key competitive advantage. For many years, the company has leveraged Optum's care delivery, technology, and pharmacy benefit management services to attract new members and to win contracts for its health insurance business, UnitedHealthcare. Optum has been offering home care services, which is a big positive for the senior population. This has played a key role in increasing UnitedHealth Group's Medicare Advantage (MA) enrollees. With baby boomers aging, the company's strength in MA will translate into long-term gains in future years.
Through Optum, UnitedHealth Group has also deployed telehealth and virtual care services for its enrollees. Although the usage of virtual care solutions peaked during the pandemic, it is still at almost 10 times pre-pandemic levels. Virtual care is usually cheaper than traditional care options.
Currently, behavioral healthcare has been reporting a 50% utilization of virtual care services. With limited access to appropriate behavioral care in the U.S., treatment is usually delayed. This results in the progression of the disease and ultimately leads to higher healthcare costs for insurers. By leveraging virtual care solutions, UnitedHealth Group can ensure timely care for patients and in turn, control its costs.
Against this backdrop, it seems that UnitedHealth Group has emerged even stronger from the pandemic and is a good healthcare pick for retail investors.
