Shares of companies which enable working from home have been hot property during the coronavirus pandemic, but this trend is here to stay, according to Saxo Bank Head of Equity Strategy Peter Garnry.
A basket of 13 U.S. stocks which have benefited from a growing trend toward working from home, along with changing attitudes toward certain leisure activities and health-care checks, is up by more than 100% since the turn of the year, he said.
Although the immediate spike in demand is obvious, Garnry suggested that the momentum has the capacity to extend beyond the pandemic and into a new era of social norms.
The biggest winner among them so far, as of Friday morning, is cloud services provider Fastly, up 307%, while video conferencing company Zoom is up 281% and has grown sales by 111.2%. Teladoc Health and DocuSign have returned 141% and 127% respectively.
The other stocks in the basket are Slack, RingCentral, Citrix, Box, Atlassian Corp, Crowdstrike, Peloton and Five9.
"The basket of stocks is generally priced above the current general market valuation with an average free cash flow yield of 0.8% but on the other hand the group is growing fast with 12-month trailing sales y/y up 44% on an equal-weight basis," Garnry said in a note Wednesday.
He also noted that rather than being a sudden flash in the pan, this collection of stocks has significantly outperformed the S&P 500 since 2015, and suggested that the main question that investors should ask themselves is how likely it is that the trend continues.
"Mark Zuckerberg recently suggested that half of Facebook's employees could do their work outside its offices over the next 5-10 years. Twitter has actively adopted an infinity policy on work-from-home making it possible for the employees to choose their own working life," Garnry said.
"Our view is that work-from-home will continue as a trend as many companies will allow employees to have mixed working schedules shifting between being at the office and working from home. This will underpin demand for remote technology solutions over the coming decade."
Garnry noted that a key risk to this paradigm shift is the prospect of rising interest rates, which could significantly cut valuations and bring about a sharp correction in these stocks, since a free cash flow yield of 0.8% leaves little by way of a safety net for any deviations from the current discounted trend.
"A vaccine and quick global rollout is of course also a key risk as it could cause a rollback of the work-from-home trend before it has established itself a rooted habit."
The World Health Organization said on Thursday that it remains uncertain whether scientists will be able to develop a successful vaccine for Covid-19, and cautioned that it could take at least a year if one were to be invented.
Disclaimer: Peter Garnry does not own any of the stocks mentioned in this article.