Investors don't necessarily think about the supply chain when they're looking at potential stocks. But supply chain shortages could slow down an otherwise high-growth stock, and there's always a dance between a retailer and its suppliers to get the right mix of products when they're needed.
Most of the strong retail stocks you know pull enough weight to effectively manage the supply chain. But even the big chains can get caught by surprise, and many companies are still dealing with the pandemic fallout. It's a real advantage for a stock when it's immune to supply chain disruptions altogether.
Three Motley Fool contributors offered their top picks for stocks that are immune to supply chain problems and they chose Airbnb (ABNB 1.17%), DraftKings (DKNG -0.87%), and Activision Blizzard (ATVI).
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Around the world in thousands of rentals
Jennifer Saibil (Airbnb): If you've ever booked a vacation rental through Airbnb, you're like millions of people around the world who are taking advantage of this platform that brings global destinations to your fingertips.
The beauty of the model is that Airbnb doesn't need to invest a cent in the rentals themselves (although they are piloting some of that, too.) Not only does that cut costs significantly (although in these growth stages there are plenty of other costs), but it also makes for an agile, flexible process that has proved highly resilient while the world is dealing with a global pandemic. Along these lines, Airbnb doesn't have to worry about the international supply chain shortage that has impacted other industries.
In fact, Airbnb made a huge comeback from the pandemic doldrums with a nearly 300% revenue jump in the second quarter and a nearly 200% increase in booked nights and experiences.
Net loss contracted considerably as well, from close to $600 million in 2020 down to $68 million in Q2 2021. As the company grows, adding rental units and nights booked, it should begin to post a profit. And that time may not be so far off.
Without operating its own hotels, Airbnb's sales matched Hilton Worldwide Holdings at $1.3 billion and about doubled Hyatt Hotels' second-quarter sales.
Setting up new rentals is as simple as getting new hosts on board, and the company has recruited 4 million hosts as of the end of the second quarter.
Despite all this, the market still isn't too impressed, and the stock is up a meager 9% year to date as of this writing. I would say there are two factors here: valuation and loss. Shares are trading at 21 times trailing-12-month sales, and the company is still posting a loss. However, it's in high-growth mode, and if you can see the potential here, including the benefits of not needing to rely on a supply chain, you should consider the stock for your portfolio.
A mobile betting company without any physical goods on offer
Parkev Tatevosian (DraftKings): DraftKings offers daily fantasy sports, mobile sports betting, and iGaming on an online platform. The company is immune from supply chain problems that have been hindering operations for so many companies recently. The coronavirus pandemic is putting kinks in the supply chain. One outbreak at an important port could send the entire team home and shut down the terminal for a couple of weeks. Any company that relies on physical goods is at risk of disruption to its business at any moment.
Therefore, growth stocks like DraftKings that are immune from supply chain shortages have a degree of lower risk comparatively. In fact, DraftKings may benefit if there are major supply issues. Indeed, if customers have the same income level but fewer things to spend money on, those services and products that remain available will benefit.
DraftKings is already growing rapidly, increasing revenue by 298% in its fiscal second quarter. It will only put fuel on the fire if it gains a competitive advantage from supply chain disruptions. Nevertheless, the lower degree of risk for DraftKings operating during a pandemic has given management confidence to raise its annual revenue growth target to a midpoint of 94%.
Investors should not take that to mean the company comes without risks. However, DraftKings' main risks are regulatory, not pandemic-related. The company is at the whim of states permitting it to operate within their jurisdictions. That being said, states appear to have a healthy appetite for granting DraftKings a license to market its services. In the last month alone, DraftKings expanded its mobile sportsbook offering from 12 states to 14.
The stock is not cheap, trading at a forward price-to-sales ratio of 19. The company's excellent growth prospects and lower degree of risk during the pandemic look like they are already priced into the stock. Still, investors can put this growth stock on their list and look for an opportunity to accumulate shares during a market correction.
New catalysts could supercharge this top gaming stock
John Ballard (Activision Blizzard): The trend toward digital entertainment received a huge boost during the pandemic. Nowhere was this more apparent than the acceleration in growth at one of the top game makers in the world. Activision Blizzard's adjusted revenue, or bookings, rocketed 32% in 2020, which followed the successful release of Call of Duty: Mobile in October 2019 that brought in 92 million new players.
Most of Activision Blizzard's employees worked from home, which allowed the company to continue delivering new content to players through the pandemic. In Call of Duty, players can buy Call of Duty points to unlock additional content. Through the first half of 2021, in-game spending across all the company's games made up 66% of total bookings.
Activision Blizzard ended the second quarter with 408 million monthly active users across all titles, up from 327 million in Q2 2019. That's nearly double the amount of global paid subscribers at Netflix. The video game industry should finish 2021 at $175 billion in total sales, according to market researcher Newzoo, which makes it one of the largest forms of entertainment in the world.
Activision Blizzard's global reach and roster of major gaming brands, including World of Warcraft, Overwatch, and the popular mobile game Candy Crush, positions the company for more growth. The future in this industry favors big companies that have the resources to deliver deeply engaging gaming experiences. Over the last year, Activision generated $2.49 billion in free cash flow on $8.8 billion of bookings. It generates more than enough cash to fund game development and still pay a small dividend to shareholders, with the annual yield currently at 0.6%.
While bookings growth is slowing this year after such a big year in 2020, Activision's ability to continue delivering content to players makes it a great stock to consider in these crazy times of COVID-19 and threats of new variants of the coronavirus. Despite recent leadership changes at the Blizzard studio over a civil lawsuit, the company reported on its Q2 earnings call that it is still on track to release a new slate of blockbusters in the next few years from the Diablo and Overwatch franchises that could make the recent dip in the share price a timely opportunity to buy the stock.
