We all remember the early days of the pandemic, when we left our offices thinking we’d return in a couple weeks, only to return a couple years later, if at all. Gyms were closed, business decisions were made over video, education moved virtual, and we did whatever we could to entertain ourselves within the confines of our homes. These temporary, global shifts in human behavior produced significant winners and losers in the stock market that we’re now learning were short-lived trends, not long-term opportunities.
Companies that seemed to be thriving from lockdown-driven behavior change during the pandemic are now struggling as they come down from that high and the formerly quarantined emerge from their homes to enjoy in-person experiences again. Zoom and Peloton were two standout stay-at-home stocks that soared roughly 400% in 2020(1). Since its peak in late 2020, Zoom shares have declined over 80%, including a 43% decline so far this year. Peloton shares have absolutely plummeted by more than 94% since its late 2020 peak, with current share prices hovering around $9.50, the lowest price since Peloton IPO’d in late 2019. Other stay-at-home stocks that have followed a similar pattern(2) include Zillow, Roku, Chegg, and Teladoc, among many others.
On the flip side, return-to-normal stocks in the travel and hospitality industries that saw steep declines in the pandemic are now recovering(1) with increased earnings and parallel share prices. However, outliers of the pandemic-era boon stocks do exist. Etsy’s valuation(1) climbed steadily throughout the pandemic until its peak at $294/share in late 2021, far later than many other stay-at-home stocks peaked. Etsy’s stock has fallen since that peak, but has increased 200% overall from the start of the pandemic in March 2020 to today in mid-2022. Whether boom or bust, all these examples confirm that trendy stocks can’t be trusted for long term investment potential. This is why fundamentals outweigh stocks and should be prioritized in any market condition.
So far this year, the bearish stock market has been responding to interest rate hikes and high inflation that have been compounded by the war in Ukraine and significant political changes in the US, all as we return to pre-pandemic normalcy in a midterm election year, no less. It’s no wonder the market is responding with pure volatility, which investors are reacting to by bailing on trendy stocks and sinking into high-quality, established companies, dividends, predictable earnings, and cash flow. The return to fundamentals has been critical for this shift.
Because so much of our lives revolved around technology during the pandemic, the tech sector as a whole has felt this swing the strongest. Fundamental analysis still indicates that tech offers the best opportunity for secular growth with strong entry-point prices at the current low-point of the post-pandemic pendulum swing. This is especially true for hardware and software companies involved in cloud migration, global digitization, and AI/ML, but less so for consumer-based brands. Our TrueShares AI and Deep Learning ETF (LRNZ) focuses on such pandemic-agnostic companies using fundamental analysis aimed at long term, secular growth as our world becomes more technologically advanced regardless of trending behavior change.
Learn more about TrueShares AI & Deep Learning ETF (LRNZ) at www.truesharesetfs.com/lrnz.
- https://www.forbes.com/sites/sergeiklebnikov/2021/12/03/is-the-era-of-stay-at-home-stocks-over-heres-why-zoom-peloton-and-others-have-slumped-in-2021/?sh=2fc91c2a502b
- https://www.pionline.com/interactive/stay-home-stocks-fizzle
The TrueShares AI & Deep Learning ETF (AI ETF) is also subject to the following risks: Artificial Intelligence, Machine Learning and Deep Learning Investment Risk – the extent of such technologies’ versatility has not yet been fully explored. There is no guarantee that these products or services will be successful and the securities of such companies, especially smaller, start-up companies, are typically more volatile than those of companies that do not rely heavily on technology. Foreign Securities Risk -The Fund invests in foreign securities which involves certain risks such as currency volatility, political and social instability and reduced market liquidity. Growth Investing Risk – The risk of investing in growth stocks that may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company’s growth potential. IPO Risk – The Fund may invest in companies that have recently completed an initial public offering that are unseasoned equities lacking a trading history, a track record of reporting to investors, and widely available research coverage. IPOs are thus often subject to extreme price volatility and speculative trading. New Issuer Risk – Investments in shares of new issuers involve greater risks than investments in shares of companies that have traded publicly on an exchange for extended periods of time. Non-Diversification Risk – The Fund is non-diversified which means it may be invested in a limited number of issuers and susceptible to any economic, political and regulatory events than a more diversified fund.
