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320,844

Stock winners and losers in the post-Covid 19 work-from-home world

8:08 am ET April 24, 2020 (MarketWatch)
Print

By Michael Brush, MarketWatch

Arranging your home for work and play will benefit many companies, from consumer-electronics makers to home-furnishings purveyors

Lots of people have gotten a taste of working at home during the coronavirus lockdown, and they like it -- despite the barking dogs, demanding toddlers and makeshift office space.

Their bosses benefit, too. Studies such as this one (https://hbswk.hbs.edu/item/how-companies-benefit-when-employees-work-remotely) from Harvard University and this one (https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/wfh.pdf) from Stanford University show that work-from-home increases productivity. It can also reduce turnover and help businesses attract talent.

So it's no surprise that one of the lasting effects of coronavirus will be an increase in the number of people working from home. A recent study by Gartner (https://www.gartner.com/en/newsroom/press-releases/2020-04-03-gartner-cfo-surey-reveals-74-percent-of-organizations-to-shift-some-employees-to-remote-work-permanently2) found that three-fourths of companies surveyed plan to have an additional 5% of their employees work from home. A quarter of them suggested they might move to 20% working from home.

A study by the brokerage Jefferies reached similar conclusions. All of this suggests we could see a doubling of the current 5% of employees working from home, according to Jefferies. This trend will have significant investment implications, creating many winners and losers.

Here's a look.

Free-time plays

The average U.S. worker commutes 54 minutes a day, according to the U.S. Census Bureau. Assuming 262 work days a year, working from home frees up about 240 hours a year.

What will people do with that free time? Jefferies analyst Alexander Giaimo thinks they'll use it to play more video games, given that 65% of U.S. adults already do. "We see gaming as a clear beneficiary to increased work from home," he says. He cites Activision Blizzard (ATVI) and Zynga (ZNGA) as primary winners because of their strong content slate.

But people might also use the extra time to hit the gym to improve their fitness, especially given that underlying health conditions can make Covid-19 worse. This is one reason I recently suggested Planet Fitness (PLNT) in my stock newsletter, Brush Up on Stocks (http://www.uponstocks.com). I also like the robust insider buying in pullback in the $51 to $64 range, or around current levels.

Working more at home will also have people spending more on consumer electronics, home furnishings and home improvement, says Jefferies analyst Jonathan Matuszewski. He says this will help Best Buy (BBY), Wayfair (W), Williams-Sonoma (WSM), Lowe's (LOW) and Home Depot (HD).

Collaboration plays

An obvious beneficiary in the work-at-home trend include companies that help remote employees collaborate with their bosses, colleagues, clients and customers. This can get tricky in a world where people use a slew of different devices from PCs and smart phones, to tablets and good, old desk phones to communicate via voice, text, email, video and social media.

"Legacy, on-premise communications solutions are limited and will not adapt well to an increasingly work-from-home world," says Jefferies analyst Samad Samana. "Cloud-based solutions are better equipped to allow seamless transitions to work from home."

Samana cites RingCentral (RNG). It offers a cloud-based system that can tie it all together, making it easier for home-based workers to connect via online meetings, team messaging, video and voice. Other companies that help with web conferencing and collaboration include Zoom , Slack (WORK), Atlassian (TEAM), Dropbox (DBX) and Microsoft (MSFT). Samana also likes NICE (NICE.TV), which helps companies set up cloud-based contact centers. DocuSign (DOCU) will also help with paperwork flow.

Virtual desktops

Cloud-based desktop virtualization systems store employee desktops remotely on servers instead of locally on devices. This helps remote employees access their work desktops from many different devices including PCs, smart phones and iPads, which makes it easier to work from home. The work-at-home trend will help companies that offer virtual desktop software like Citrix (CTXS), VMware (VMW) and Microsoft, says Jefferies analyst Brent Thill.

Security plays

As more people work at home, it's easier for thieves and trouble makers to break into computer systems. So this trend will increase security spending. Thill says this will benefit CrowdStrike (CRWD), Varonis (VRNS), Palo Alto Networks (PANW), Okta (OKTA) and Ping Identity (PING).

Nuts-and-bolts stocks

Increased communication from remote locations will boost internet traffic, putting a burden on network infrastructure and forcing telecom companies to increase investments in equipment. This will benefit Ciena (CIEN), Juniper (JNPR), Arista Networks (ANET) and CommScope (COMM), says Jefferies analyst George Notter. The work-from-home trend should also benefit Equinix (EQIX), which is a data-center real estate investment trust, or REIT.

Higher demand for cloud servers, laptops and home computers, routers and communications-infrastructure equipment will boost demand for chips. Broadcom (AVGO) and Inphi (IPHI) are companies that have a lot of exposure to this trend, says Jefferies analyst Mark Lipacis.

Potential losers

The shares of two types of companies might not rise as much as the S&P 500 or the Dow Jones Industrial Average as the economy rebounds from the lockdown recession. First, if more people are working from home, the rebound in the economy won't necessarily translate into demand growth for office space.

"We see the most downside for New York City office REITs such as SL Green (SLG), says Jefferies analyst Jonathan Petersen.

A recent study by Jefferies suggests 90% of women go makeup free while working from home. So increased work from home would exacerbate the trend toward using less makeup, already in place since 2018. Jefferies analyst Stephanie Wissink thinks elf Beauty (ELF) will face headwinds because of this.

At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested ATVI, PLNT, LOW, HD, MSFT, and PANW in his stock newsletter, Brush Up on Stocks (http://www.uponstocks.com). Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School.

-Michael Brush; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires

April 24, 2020 08:08 ET (12:08 GMT)

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