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Worried About Another Coronavirus Lockdown? Buy These 4 Top Stocks Now

The second wave of coronavirus is already raging across Europe, and is soon expected to hit the United States. As a fresh bout of lockdown restrictions is likely to be imposed to contain the rising spread of the deadly virus due to a drop in temperature in the coming months, demand for cloud-based websites, interactive platforms, and virtual entertainment should grow significantly. This should help Peloton Interactive (PTON), Activision Blizzard (ATVI), Zoom Video Communications (ZM), and Take-Two Interactive Software (TTWO) resume their bull market.

The pandemic is showing no signs of slowing down. The second wave of infections in several European and Asian countries has led to the imposition of fresh lockdowns. Though many fear that this move could wipe out some of the stock market’s gain from mid-March, it is essential as the “second wave” is predicted to cause a higher number of fatalities, according to a team of UK scientists. 

With fresh lockdown imposed across Germany, Italy, and France, the United States is soon expected to follow suit. The upcoming holiday season and the presidential election campaigns have taken large numbers of people to the streets, disregarding the social distancing rules. Also, as the COVID-19 infections are likely to surge with a drop in the temperature, the United States is expected to witness a second wave soon, leading to another round of lockdowns and restrictions.

As people are likely to be confined indoors for some time soon, either by federal decree or personal preference, the demand for virtual entertainment and meeting is expected to rise. From working-and-learning-from-home to live interactive workouts and virtual gaming, companies catering to these services are expected to witness an increase in their user volume and revenue over the next couple of months. Companies such as Peloton Interactive, Inc. (PTON), Activision Blizzard, Inc. (ATVI), Zoom Video Communications, Inc. (ZM) and Take-Two Interactive Software, Inc. (TTWO) are well-positioned to benefit from a potential second lockdown, as they have upgraded their services to attract a larger user base globally.

Peloton Interactive, Inc. (PTON) 

PTON is an international interactive fitness product provider, operating in three segments – Connected Fitness Product, Subscription Products, and Other. Its connected fitness products include Peloton Bike and the Peloton Tread, while the subscription segment comprises on-demand live classes and customized instructor-led boutique streaming exercise routines accessible through Peloton Digital App. The company has a retail market presence along with a web platform. 

PTON has recently teamed up with credit card company Chase Sapphire to provide discounts on memberships paid through their credit cards. PTON is expected to increase its user base through this aggressive discount pricing strategy. 

PTON increased its product portfolio by introducing Bike+ and New tread across the United States, United Kingdom, Canadian and German markets in September. Available for commercial sale by 2021, these products are marketed at a lower price point with several financing options, thereby making it a more affordable purchase. This should increase the company’s net sales revenue in the upcoming years. 

PTON’s fiscal fourth quarter ended June 2020 revenues increased 172% year-over-year to $607.10 million. Its gross margin rose 275 basis points to 47.6 %, while profits rose 188% from the prior-year quarter to $288.80 million. EPS of $0.31 for this period marks a significant increase from the negative values reported a year ago. 

The company expects its fiscal first-quarter (ended September 2020) revenues to be in the range of $720 million and $730 million, indicating a 218% improvement year-over-year. The consensus EPS estimate of $0.11 for the about-to-be-reported quarter indicates a 108.5% growth from the year-ago value.                

PTON has gained 685% since hitting its 52-week low of $17.70 in March. The stock hit its 52-week high of $139.75 in October.

How does PTON stack up for the POWR Ratings?

B for Trade Grade

 B for Peer Grade

A for Industry Rank 

B for Overall POWR Rating. 

It is currently ranked #6 out of the 34 stocks in the Consumer Goods Industry. 

Activision Blizzard, Inc. (ATVI) 

ATVI is a creator and distributor of interactive video game content and services on mobile devices, video game consoles, and personal computers. The company offers its services across the Americas, Africa, Asia-Pacific, the Middle East, and Europe. Its three main segments of operation are Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The company’s proprietary online gaming service Battle.net facilitates the development of user-generated content, digital distribution, and online social connectivity for its gaming platform. 

Earlier this year, the company raised approximately $1.97 billion through senior notes offering. ATVI plans to utilize a part of its net proceeds to redeem outstanding senior notes. This should help the company reduce its interest burden significantly, as the interest borne by the older senior notes were higher than currently newly issued unsecured notes. 

ATVI’s net revenue increased 52.3% year-over-year to $1.95 billion in the third quarter ended September 2020. Net income grew 196.1% from the same period last year to $604 million, while non-GAAP EPS rose 131.6% from the year-ago value to $0.88. 

The consensus EPS estimate of $3.38 for the current year indicates a 50.2% growth from the year-ago value. Moreover, ATVI has an impressive earnings surprise history, as the company beat the street EPS estimates in each of the trailing four quarters. Analysts expect revenues to grow 27.2% this year to $8.13 billion.

ATVI gained more than 70% to hit its 52-week high of $87.73 in August since hitting its 52-week low of $50.51 in March. ATVI is rated “Buy” in our POWR Ratings system, consistent with the underlying industry strength and strong financials. It has an “A” for Trade Grade, and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. In the 15-stock Entertainment-Toys & Video Games industry, it is ranked #3.

Zoom Video Communications, Inc. (ZM) 

ZM has become one of the most used applications during the pandemic, as people have shifted to remote working and learning from physically attending offices and schools/colleges to minimize human contact. As people are adjusting to the “new normal,” with an impending threat of “the second wave,” the work-and-learn-from-home culture is here to stay. Even the entertainment industry is gradually adapting to this trend, through Zoom concerts and promotions.

ZM’s latest end-to-end encryption launched in October aims to uphold the privacy of Zoom sessions for both paid and free users globally. This move should raise the average number of ZM users significantly.

The company partnered with MURAL app to provide visual collaboration capabilities into Zoom sessions, thereby enhancing engagement and productivity of participants. By making it easier for distributed teams to engage, create, and collaborate, ZM has increased the efficiency of its video conferencing platform, therefore, making it more alluring to the masses. 

ZM entered into a new carrier agreement with BT Group Plc, which would make BT the first global provider of a fully managed Zoom meeting service. Lumen Technologies also partnered with ZM to offer ZM as a part of its unified communications and collaboration suite. These global partnerships allow the company to gain a larger footprint in the global market. 

ZM’s total revenue surged 355% year-over-year to $663.50 million in the fiscal second quarter ended July 2020. Income from operations increased 8,078.3% to $188.10 million, while EPS grew 3,200% from the prior-year quarter to $0.66. 

The consensus EPS estimate of $0.76 for the fiscal third quarter ended October 2020 indicates a 744.4% improvement from the year-ago value. Moreover, ZM beat the street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $693.35 million for the about-to-be reported quarter indicates 316.2% growth from the same period last year. 

ZM has gained 577.4% year-to-date. The stock hit its 52-week high of $588.84 in October. 

ZM is rated “Buy” in our POWR Ratings system, with a “B” for Trade Grade, Peer Grade, and Industry Rank. It is also ranked #5 out of 54 stocks in the Technology-Services industry.

Take-Two Interactive Software, Inc. (TTWO) 

TTWO is a video game holding company, which builds, publishes, and markets interactive entertainment solutions for users all across the globe. The company owns two major publishing labels – the Rockstar Games and 2K. With its recent acquisition of the developer Social Point, it has established itself in the mobile game market as well. The company also publishes entertainment properties and sports simulation. 

TTWO launched several games over the past couple of months, as standalone games or sequel to pre-existing games. The company acquired Playdots Inc. in August for $192 million in cash and stocks. 

TTWO reported impressive financials in the fiscal first quarter ended in June 2020. Net revenue increased 54% year-over-year to $831.30 million. Net cash from operating activities increased 310% from the same period last year to $445.40 million. Non-GAAP Adjusted Unrestricted Operating Cash Flow increased 595% from the prior-year quarter to $324 million, while net bookings grew 136% to $996.20 million. TTWO’s EPS increased by 90.2% to $0.78.

Though the consensus EPS estimate for the fiscal second quarter ended September 2020 indicates a year-over-year decline, TTWO has an impressive earnings surprise history, as it beat the street EPS estimates in three out of the trailing four quarters. EPS is expected to increase at 14.7% per annum over the next five years. The consensus revenue estimate of $3.04 billion for the current year indicates a slight improvement year-over-year. 

TTWO has gained more than 80% since hitting its 52-week low of $100.00 in March. The stock hit its 52-week high of $180.61in August. 

TTWO’S POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with a “B” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Among the 15 stocks in Entertainment-Toys & Video Games industry, it is currently ranked #4.

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PTON shares were trading at $113.44 per share on Monday afternoon, up $3.23 (+2.93%). Year-to-date, PTON has gained 299.44%, versus a 4.06% rise in the benchmark S&P 500 index during the same period.



About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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