The “value rally” in stocks has been a hot topic on many investors’ minds lately as we’ve seen shares in airlines, hotels, cruise ships and energy stocks rise along with hopes a COVID-19 vaccine is just on the horizon.
Unfortunately, that’s not my thesis.
In my view, you’d have to take a “brave pill” at this point to follow this trend right now. That’s because you’re essentially betting everyone will receive and take the vaccine and things will get back to normal soon.
However, I believe it’s going to take a long time to get vaccines out to everyone. Interestingly, shares of Pfizer (PFE) dipped Thursday after the Wall Street Journal reported the company may have to reduce its initial goal of shipping 100 million vaccines by yearend in half after it received some raw materials needed for the vaccine that failed to meet quality standards.
The fact is that the logistics involved in getting vaccines to the public are complicated and take time to carry out.
In the meantime, consumer behavior may not change all that much for a while. It’s why I expect the work-from-home trend to continue, particularly when many of us are more productive doing so.
The bottom line is that it’s still a washing machine market out there, with many ups and downs to watch for. The good news is that I’m very confident that investors will return to quality.
That bodes well for my fundamentally superior stocks, which are characterized by solid sales and earnings growth.
Take two companies on my Growth Investor Top 5 Buy List benefitting from the work-from-home trend: Zoom Video Communications, Inc. (ZM) and DocuSign, Inc. (DOCU). Both companies released their quarterly results this week. Both also exceeded analysts’ expectations and, in turn, provided strong forward-looking guidance. Let’s take a closer look at the numbers.
ZM has been one of the hottest “pandemic plays” on the market as many folks have to work from home and connect via video chat.
After the stock market closed on Monday, the company posted blowout earnings and revenue results for its third quarter in fiscal year 2021. During the quarter, the company added 433,700 customers, which represented businesses that had more than 10 employees. That was a stunning 485% increase over the same quarter a year ago.
For the third quarter, Zoom achieved total revenue of $777.2 million and adjusted earnings of $297.2 million, or $0.99 per share. That represents 367% year-over-year revenue growth and 1,000% annual earnings growth. The consensus estimate called for earnings of $0.79 per share on $693.95 million in revenue, so Zoom crushed earnings estimates by 25.3% and revenue forecasts by 12%.
Looking ahead, Zoom noted that it expects to “strengthen its market position” in the remaining weeks of the year. As a result, the company increased its guidance for the fourth quarter. Fourth-quarter revenue is now forecast to be between $806 million and $811 million and earnings per share are expected to be between $0.77 and $0.79. In comparison, Zoom reported earnings of $0.15 per share and revenue of $188.25 million in the fourth quarter of fiscal year 2020.
Full-year 2021 estimates are equally impressive: Revenue is expected to be between $2.575 billion and $2.58 billion, up from $622.66 million, and earnings per share are forecast to be between $2.85 and $2.87, up from $0.35 per share.
Zoom obviously had earnings and sales growth that’s nothing less than incredible.
Yet shares got hit with profit-taking the following day, dropping over 13%. When a company with as spectacular a performance as Zoom as had during the pandemic falls after reporting a blow-out quarter like this, my advice is not to worry about it. It will bounce back.
The reality is ZM is one of 300 stocks that holds a AAA-rating in my Portfolio Grader, as earns an “A” in my Portfolio Tracker for its Quantitative Grade and Fundamentals Grade, with an overall grade of “A.”
I added Zoom back in June to the Growth Investor portfolio, where it’s now sitting pretty with a 60% gain.
Then there’s DocuSign, Inc. (DOCU).
Similar to Zoom, shares of the cloud software provider dipped over 6.5% on Monday through Tuesday before rallying more than 6% on Thursday in anticipation of the company’s third-quarter earnings report for its fiscal year 2021.
The company did not disappoint.
Total third-quarter revenue soared 53% from a year ago to $382.9 million, which topped analysts’ expectations for $361.15 million. Subscription revenue accounted for $366.6 million, or a 54% year-over-year increase. Total billings during the quarter were $44.04 million, a 63% jump.
Third-quarter earnings per share doubled to $0.22, up from $0.11 per share in the same quarter a year ago. The analyst community was expecting earnings of $0.13 per share, so DocuSign smashed analysts’ estimates by 69.2%.
Company management commented, “As companies accelerated the digital transformation of their business and agreement processes, DocuSign’s role as an essential cloud platform continues to grow. Our third-quarter results reflect that tailwind, as well as the immediate and long-term value that customers see from eSignature and our broader Agreement Cloud.”
Looking ahead to the fourth quarter in fiscal year 2021, DocuSign expects total revenue between $404 million and $408 million. Subscription revenue is anticipated to account for between $384 million and $388 million. And billings are forecast to be between $512 million and $522 million.
DocuSign shares continued to rally today, climbing over 10% higher earlier in the day.
I added DocuSign back in May to the Growth Investor portfolio, where it holds a strong 91% return. The stock is also number one on my Growth Investor Top 5 stocks list right now. (You can find the full list, as well as my latest recommendations, here.)
t also earns an “A” in my Portfolio Tracker for its Quantitative Grade and Fundamentals Grade, with an overall grade of “A.”
Becoming a “One Percenter”
Of course, separating the crème de la crème, which is exactly what ZM and DOCU are, from everything else is what I specialize in. In fact, I’ve used this force to amass more money than I’ll ever care to spend.
Believe me when I say this force is incredibly powerful. I’ve seen it turn ordinary Americans into multimillionaires – even billionaires. I’ve also seen it devastate the masses, even members of my own family and close friends.
I’m talking about a great divide that’s opening up in America. On one side is a new aristocracy that’s amassing more wealth, more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate. Today, nearly 80% of Americans are living paycheck to paycheck. And 25% of American families earning $150,000 a year now depend on the next paycheck just to keep their heads above water.
The thing is, this force is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is happening. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
That’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
It doesn’t matter if you have $500 in savings or $5 million. You can benefit from the information in this video.
It’s free to watch and by doing so I know you’ll be ahead of everyone else struggling to understand what is really going on.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Pfizer (PFE), Zoom Video Communications, Inc. (ZM), DocuSign, Inc. (DOCU)