Two major research firms have published reports highlighting the surge in pandemic-related technology spending while providing a plethora of investment ideas to benefit from a work from home revolution that is expected to continue even after COVID-19 is successfully tackled.
Kash Rangan, an analyst at B of A Securities (formerly Merrill Lynch), calculated the effects of the North American lockdown on software spending. He estimated that revenue for software companies will climb 12.4 per cent in 2020 compared to early-year estimates of 6.5 per cent year over year.
Mr. Rangan is confident that current trends towards remote work will continue far into the future. “We believe there will be a fundamental change in the underlying way every CEO, founder, or operator both runs their company and views software and technology”, he writes, adding, “Our survey [of 500 companies] also indicated that post-COVID ~47% of workforces are expected to work remotely.”
Surprisingly, the major software companies like Microsoft and Google have been slow to provide cloud-based communications solutions, and B of A expects newer companies like Zoom Video, Ring Central and Twilio to be among the biggest winners as work from home continues.
The outlook for salesforce.com also appears bright given the company’s strategy of extending its footprint for clients from sales force management into marketing and services applications.
Mr. Rangan also emphasized Splunk Inc. as a compelling investing idea, as the company moves from network security software into data monitoring and application integration.
At Citi, “A New World Of Remote Work? - Honing in on key companies exposed to an emerging thematic”, cites research from Oxford University concluding that 52 per cent of American workers could potentially work remotely. Sector-wise, Citi sees strong growth for productivity and collaboration software, online education, digital health, communications equipment providers, data centres and network security stocks.
Citi’s software analyst Walter Pritchard is particularly bullish about companies like Citrix Systems Inc. and VMware Inc that manage remote desktop access. Mr. Pritchard also noted that remote worker access entails a number of network security challenges. Stocks like Zscaler Inc., Okta Inc. and Palo Alto Networks will benefit from increased security spending.
Citi’s full list of stock ideas is far too long to recount here (although I posted it on social media here). Some of the better-known names include Charter Communications, Cloudera Inc., Docusign, Emerson Electric Co., Microsoft Co., Oracle Corp., Slack Technologies Inc., and Zoom Video Communications.
The challenge for investors in playing these themes is that the technology sector has become incredibly complicated and it’s difficult to know exactly what any given company does within communications architecture. ETFs like the First Trust NASDAQ Cybersecurity ETF (CIBR-Q) definitely help and investors should investigate any new diversified ETF offering that provides exposure to this important revolution in technology.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Liberty Gold Corp. (LGD-T) Year-to-date, the share price is up 56 per cent and analysts are anticipating the share price may rise a further 43 per cent over the next year. The stock has a unanimous buy recommendation from six analysts and some believe it’s a potential takeover target. Jennifer Dowty has a full profile of the company.
Vaalco Energy Inc. (EGY-N) Benj Gallander and Ben Stadelmann (a.k.a. The Contra Guys) think there’s potential for a four-bagger when it comes to this struggling Houston-based small-cap energy stock. It’s been reporting big losses, but the balance sheet is debt free and the firm is sitting on considerable cash. It also has an active drilling program that had a 100 per cent success rate in its most recent quarter. Read their investment case for buying the stock.
Archer-Daniels-Midland Co. (ADM-N) This is one of the largest food-processing companies in the world, using mainly plant-based materials. The stock, which normally trades in the US$40-$50 range dropped to under US$29 in March before rallying. Gordon Pape considers it a good value at the current level.
Retail rush: Online brokers see surge of Canadian investors riding the market wave
Growing ranks of retail investors in Canada and the U.S. have leaned into what has proved to be a stock market rally for the ages. While many large institutional investors sat out this spring’s extraordinary rebound in stock prices, the so-called dumb money piled in early, swarming online discount brokerages in unprecedented numbers. And while big surges in retail investing activity typically fizzle out in a matter of days, this one is showing no signs of relenting. Tim Shufelt reports (for subscribers)
Annuities cure stock market anxiety, but you better hustle if you want one
Annuities are insurance contracts that work like this: Pay a life insurance company a lump sum amount, get a set monthly payment for as long as you live. A couple of veteran insurance advisers have reported an uptick in demand for annuities since stocks crashed in March. Don’t delay if you’re interested because annuity payments are almost certainly headed lower, says Rob Carrick. (for subscribers)
Investors pour money into gold, forests, and other assets on expectation inflation dog may finally bite
Gold, forests, property stocks, inflation-linked bonds - these are just some of the assets investors are pouring money into on the view that the recent explosion of government spending and central bank stimulus may finally rouse inflation from its decade-long slumber. Yoruk Bahceli of Reuters has this analysis. (for everyone)
Others (for subscribers)
Monday’s Insider Report: Billionaire businessman invests over $16-million in this dividend stock
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Ask Globe Investor
Question: We have been contributing to a registered education savings plan for our two granddaughters since they were born. Some stocks we chose – such as Alphabet (GOOG) and Facebook (FB) – have produced large gains and the RESP is now worth about $500,000. Our problem, if you can call it that, is we will likely never be able to withdraw all the money while our granddaughters – who are entering their first and third years of university – are attending school. Any advice?
Answer: First, congratulations. Your granddaughters are fortunate to have such skilled investors looking after their postsecondary financial needs. But, as you indicated, your success has created an unusual challenge: Now that you have amassed a small fortune inside the RESP, what’s the best way to get the money out?
Let’s go over some RESP basics before we dig into the details.
Contributing to an RESP is relatively straightforward. You deposit some cash, and the federal government contributes an additional 20 per cent in the form of the Canada Education Savings Grant, which provides up to $500 per child per year. (Additional incentives are available for families with modest incomes and those living in certain provinces.)
But when it comes time to start withdrawing money, things get a little more complicated.
Read all the details here from John Heinzl. (for everyone)
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Compiled by Globe Investor Staff